Earnings First Take: 1Q22 core earnings increased by 117% y-o-y, higher than market expectations
- 1Q22 core earnings increased by 117% y-o-y to Rmb2bn, higher than market expectations
- Revenue increased by 6.4% y-o-y to Rmb27.9billion
- Gross profit grew by 13.5% y-o-y to Rmb10.6bn, with gross margin up by 2.4ppts
- Expect positive share price reaction
What’s New
– ZTE (763 HK) announced 1Q22 results on 25 Apr 2022 after market close.
– Operating revenue increased by 6.4% y-o-y to Rmb27.9bn in 1Q22.
– Gross profit grew by 13.5% y-o-y to Rmb10.6bn, with gross margin up by 2.4ppts.
– Total opex expenses increased by 7.2% y-o-y.
– Net profit increased by 1.6% y-o-y to Rmb2.2bn in 1Q22.
– Core earnings (net profit excluding extraordinary items) increased by 117.1% y-o-y to Rmb2bn, higher than market expectations thanks to better than expected gross margin, slower growth
Our View:
– We expect positive share price to reaction as 1Q22 core earnings is higher than market expectations.
– The earnings growth was enhanced by lower finance cost of Rmb326m, slower growth in operating expenses of 7.2% (vs 13.5% for gross profit growth) and lower credit impairment losses of Rmb92m.
– Expect revenue growth to increase in subsequent quarters given domestic operators capex hike in FY22 and potential ease of COVID-19 situation in China.
– We forecast full-year earnings to grow by 18.5% y-o-y in FY22.
– We currently rate BUY on the counter; TP of HK$31.3(H)/Rmb43.5(A).