ZTE (000063): 2019Q1 Operational Improvement Prospects 5G Leader in New Phase

ZTE (000063): 2019Q1 Operational Improvement Prospects 5G Leader in New Phase

Event: The company released the 2019 first quarter report, and the company achieved revenue of 222 in Q1 2019.

20,000 yuan, a ten-year average of 19.

34%; net profit attributable to mother 8.

63 trillion, once turned losses; meanwhile, the company estimates that the net profit attributable to the mother in 2019H1 will be 12-18 trillion, which is also a potential turning loss.

  Opinions: 1. The difficult 2018 has passed. The improvement in Q1 2019 is obvious, and the performance is basically in line with expectations.

  Net profit for the first quarter of 20198.

63 ppm, which has obviously turned around in the past, with 2 in 2018Q4.

7.6 billion yuan has also improved significantly.

  Gross profit margin: The gross profit margin of 2019Q1 is 39.

97%, the gross profit margin decreased and the average value of the chain increased, mainly due to the decline in the proportion of consumer business revenue that the gross profit margin decreased.Focusing on the operator segment with stronger profitability, gross profit margin is still expected to exceed 2018.

  The R & D expansion continued to grow. According to the company’s official website public account, the company’s R & D promotion in the first quarter of 2019 was 30.

930,000 yuan, accounting for 13% of operating income.

9%, accounting for 9 compared with the same period last year.

8% rose 4.

1 average, the absolute value is increased by about 3.

9.5 billion.

  In terms of cash flow, the net operating cash flow of the company in Q1 201912.

60 trillion, 53 net cash added value.

83 million, continuous improvement in cash flow.

  2. After the embargo, the supply chain basically returned to normal, and the basic risks were reduced.

  After the chip embargo was settled, the operator’s engineering construction / collection began to resume, ZTE’s production line resumed, and ZTE’s suppliers began to resume normal supply. According to Delll’Oro statistics, ZTE’s wireless connection in the third quarter of 2018The RAN business market share increased by 5 units, thus realizing the ability to reverse the overall market share lost to Samsung in the second quarter.

The normalization of the supply chain is the trend, and once again encounters the risk cost of chip embargo.

  3. In the medium and long term, the company is one of the four major leaders of global communications master equipment vendors, capable of providing 5G end-to-end solutions.

The increase in the capitalization of R & D funding shows that the company’s 5G and other R & D are smooth and gradually enter the commercial stage.

The Ministry of Industry and Information Technology and the Development and Reform Commission require that 5G be used commercially in 2020, and the company is expected to benefit in the long run.

  5G deployment is higher and higher, base station density is greatly improved, a large number of new technologies are dated, and the added value of equipment technology is expected to increase significantly.

The company’s 18-year R & D funding capitalization ratio is 18.

45%, an increase of 5 per year.

The 99 units show that the company’s 5G and other related research and development are progressing smoothly, and it has gradually entered a commercial stage and reached capitalization standards.

Judging from the number of patents in the 5G standard, according to statistics from ETSI and the ICT Institute, companies with more than 1,000 declarations include Huawei, Nokia, LG, Ericsson, Samsung, Qualcomm and ZTE.

ZTE ranked 6th with 1029 cases, accounting for 9%, and is the second Chinese company except Huawei.

At the same time, the company is one of the few manufacturers that can provide 5G end-to-end solutions, and the transition to 5G commercialization has gradually landed. The core business of the company’s operators and consumers promotes the development of new opportunities.

  Investment suggestion: Through the development of the 2G to 4G era, the company has become the world’s top four telecommunications equipment vendors. In the new era of 5G construction, the deployment of 5G end-to-end solutions is adopted to lead the global 5G development and continueIncrease global market share.

We are firmly optimistic about the company’s long-term growth prospects after 2020’s expanded commercial use of 5G.

It is estimated that the net profit for 19-21 will be 546,660,800,000 yuan, and maintain the “Buy” rating.

  Risk reminders: operational compliance risks, potential risks, low expectations of operator capital expenditures, escalating trade frictions between the US and China, and reduced order capacity in overseas markets