ZTE expected to corner largest share of tender

PUBLISHED : Thursday, 04 June, 2009, 12:00am
UPDATED : Thursday, 04 June, 2009, 12:00am

ZTE Corp, one of the nation's biggest telecommunications equipment vendors, is expected to win the largest share in the third-stage homegrown TD-SCDMA tender by China Mobile Communications Corp, according to industry analysts.

The news came as Citibank and HSBC Holdings revised up the rating and price target of ZTE yesterday, which sent the company's shares up 8.9 per cent to close at HK$28.75.

ZTE, Huawei Technologies, Datang Mobile, New Postcom, together with foreign vendors Ericsson and Nokia Siemens Networks, are bidding for the contract valued at 8.6 billion yuan (HK$9.8 billion).

HSBC analyst Tucker Grinnan said ZTE would solidify its leading position in the TD-SCDMA market by winning about 30 per cent of the contract that covers 200 cities across the mainland.

'If ZTE wins the major share, this should establish its dominant position in the long term,' Mr Grinnan said.

Another industry analyst said ZTE would end up with 35 per cent of the tender, while Huawei and Nokia Siemens Networks could each win 30 per cent.

Market sources previously said ZTE and Huawei, the mainland's two biggest telecommunications equipment suppliers, had slashed selling prices by as much as half in this latest round of mobile network orders.

HSBC said ZTE would have a composite gross margin of 32.5 per cent for the company's wireless products.

The bank upgraded ZTE to overweight from neutral and raised its target price by 10 per cent to HK$33, which valued the company 17 times its estimated profit.

Citibank also upgraded ZTE to buy from sell with a price target of HK$33, up from HK$18.46.

'We expect the operator's capital expenditure is on track and likely back-end loaded towards the end of this year,' Citibank analyst Michael Meng said.

He added that ZTE would see margin improvement this year due to the contribution of high-margin wireless communication systems and optics network equipment.