China’s ZTE profit rises 16pc amid US export curbs

Telecommunications network powerhouse ZTE vowed to strengthen its efforts in core industries and major markets amid lingering concerns over a US government probe, after reporting strong first-quarter earnings on Thursday.

In a filing with the Hong Kong stock exchange, chairman Zhao Xianming said the company will be “capitalising on opportunities” at its three focus areas of telecommunications carriers, the government and corporate sectors, and consumers.

He said ZTE was looking forward to the next reporting period when new innovation, such as “ultra-broadband”, are presented as part of “the age of M-ICT”, which is shorthand for the so-called mobile interconnection of all things.

ZTE, China’s largest listed telecommunications equipment manufacturer, posted a 15.97 per cent net profit growth in the first quarter to 949.51 million yuan (HK$1.13 billion), up from 818.72 million yuan in the same period last year.

“That growth was primarily attributable to the increase in operating revenue from 4G system products and optical transmission products in the domestic and international markets,” Zhao said.

Total revenue rose 4 per cent to 21.86 billion yuan from 20.99 billion yuan a year ago.

Earlier this month, Zhao reiterated ZTE’s goals to record a 44 per cent increase in net profit this year and to double revenue in 2020 from last year’s total of 100.19 billion yuan.

“Since the telecommunications equipment market is already highly consolidated, we think it is difficult for ZTE to quickly expand its market share,” Nomura analyst Huang Leping said in a report.

“However, we think there is large growth potential for ZTE in China’s enterprise network market.”

That included so-called smart city projects and the upgrade of the financial industry’s information technology infrastructure.

“We believe the success in those market segments will be a major driver for ZTE in the next few years,” Huang said.

ZTE said in its regulatory filing that it continued to enhance its competitiveness last quarter by “focusing on major populous nations and mainstream global carriers”.

It is an optimistic view that is clouded by the US government’s action in March, when it slapped ZTE with export restrictions for allegedly violating longstanding trade sanctions on Iran.

The firm has received a relief from the export curbs with a temporary general licence until June 30, during which its American suppliers can ship parts and other products to the company with no restrictions.

“The company is currently cooperating with the US Commerce Department, the US Department of Justice, the US Department of Treasury and other relevant US government departments in their investigations of the company’s compliance with the US Export Administration Regulations,” ZTE said.

Huang pointed out that ZTE may still face a one-time fine by the US government.

ZTE’s share price reached an intraday high of HK12.36 in early trading yesterday, but finished down 0.33 per cent to HK$12.20.