ZTE sees big jump in third-quarter profit

Shenzhen-based equipment maker says stricter control of contracts and lower sales, administration and R&D expenses contribute to rebound

PUBLISHED : Wednesday, 23 October, 2013, 3:55am
UPDATED : Wednesday, 23 October, 2013, 3:55am

Fewer low-profit-margin contracts and improved cost efficiencies have helped ZTE, the world's fifth-largest supplier of telecommunications equipment, see a turnaround in profits this year.

ZTE posted a 112 per cent jump in net profit to 241.6 million yuan in the third quarter compared with the same period last year, while revenue reached 17.1 billion yuan, representing a decrease of 5.6 per cent.

The company reported a net profit of 551.6 million yuan for the first nine months of the year, up 132.4 per cent year on year. Operating revenue was 54.7 billion yuan, down 10 per cent.

Shenzhen-based ZTE posted a net loss of 2.84 billion yuan last year on project delays and falling margins in emerging markets. The firm did not give a guidance figure for 2013 full-year profit.

"The increase is primarily due to the group strengthening its management over contract profitability by strictly controlling the signing of low-gross-margin contracts," the company said in a filing to the Hong Kong stock exchange.

It said sales, administration and research and development expenses would also decrease "significantly" this year as a result of strengthened cost control.

Huang Meng, an analyst at Analysts International, said the mainland's upcoming investment in its fourth-generation (4G) telecommunications networks was expected to support the earnings of domestic equipment makers.

"For ZTE and Huawei, the issue of 4G licences will help them to achieve better revenue, especially during the first and second quarters next year," Huang said.

Beijing is expected to give the green light to the commercial rollout of advanced, high-speed 4G mobile infrastructure, firstly with the TD-LTE (time-division long-term evolution) standard, built on a mainland-developed system.

"The policymakers have made it clear that domestic manufacturers will be supported," Huang said. "4G will bring them a wave of orders that will push their revenue forwards a new step."

ZTE said in the filing that the TD-LTE construction was set to usher in "another wave of investment opportunities for the domestic telecommunications industry", while pointing out the issuing of 4G licences in the mainland market had not been confirmed to date and the procurement of 4G equipment from domestic carriers remained uncertain. "It has brought some uncertainties to the group's sales revenue and profit," it said.

Shares in ZTE lost 0.3 per cent to HK$18.10 before the company revealed its quarterly results, while the benchmark Hang Seng Index dropped 0.5 per cent yesterday.