ZTE primed to bounce back after 2.9b yuan loss

PUBLISHED : Monday, 21 January, 2013, 12:00am
UPDATED : Monday, 21 January, 2013, 5:12am

ZTE, China's second-largest telecommunications equipment maker, said yesterday it might return to profit this quarter after warning of a net loss of up to 2.9 billion yuan (HK$3.58 billion) for last year.

"It is anticipated that the company will make a profit in the first quarter of 2013," ZTE said in a filing to the Hong Kong stock exchange late last night. It added that the disposal of shares in another company, Shenzhen ZNV Technology, could generate an investment income of up to 880 million yuan.

In its preliminary results for last year, ZTE said it could lose between 2.5 billion yuan and 2.9 billion yuan for 2012, highlighting the tough conditions for China's export-driven telecommunications equipment industry. Revenue growth dropped slightly while gross profit margin fell 7 percentage points from a year earlier due to the global economic slowdown.

ZTE's stock did poorly last year, losing nearly 40 per cent. But it has risen about 15 per cent so far this year compared to the Hang Seng Index's 4 per cent gain.

The Shenzhen-based mobile device maker said its forecast could be affected by the macroeconomic environment, competition and cost-control initiatives.

Despite a poor run last year, Cynthia Meng, an analyst at Jefferies, said an increase in capital expenditure among mainland telecommunications giants helped dominant vendors such as ZTE.

ZTE has also acquired sufficient financial muscle for overseas expansion after signing a co-operation agreement with China Development Bank, which offers it US$20 billion financing for Africa and developed markets.

Ronnie Ho, CCB International analyst, said ZTE was well-positioned to benefit from the increasing spending on 4G networks and the government-led "smart city" scheme promoting wider use of digital technology such as transport smart cards in urban areas.

ZTE said the company's overall gross margin dropped 11 percentage points in the fourth quarter from a year earlier. Operating revenue fell 18 per cent for the same period as the result of a large number of low-margin contracts in Africa, South America, China and elsewhere in Asia.

Meng said the smartphone market in China should remain competitive, with many vendors offering their own smartphones.

In October, ZTE had said third-quarter revenue dropped 13 per cent from a year earlier because of weaker-than-expected demand at home and overseas.

ZTE's profit has eroded as the gloomy global economy has cast a shadow over demand for telecommunications and networking equipment.