ZTE plots new growth strategy after stable first-half earnings

Telecoms equipment manufacturer’s revenue hits 47.76 billion yuan but it still has to write off bad debts totalling 62.28 million yuan

PUBLISHED : Friday, 26 August, 2016, 10:54am
UPDATED : Friday, 26 August, 2016, 11:03am

ZTE Corp, the mainland’s largest listed telecommunications equipment manufacturer, predicts further 4G deployment and system upgrades by network operators to fuel its growth for the rest of this year, despite lingering concerns about US export restrictions.

Shenzhen-based ZTE reported stable interim earnings on Thursday, days after receiving another three-month reprieve on restrictions slapped on the firm earlier this year by the US government over its alleged violation of long-standing trade sanctions on Iran.

The company also announced an ambitious new strategy around M-ICT, a shorthand for the so-called mobile interconnection of all things, which is expected to transform its operations and expand its businesses over the next five years.

We will vigorously develop smart pipes in association with telecommunication operators
Zhao Xianming, chairman, ZTE

Shares of ZTE reached an intraday high of HK$11.56 in afternoon trading before closing at HK$11.48 on Thursday, up 1.41 per cent, ahead of its interim financial results announcement.

In the company’s regulatory filing, ZTE chairman Zhao Xianming said “the slowdown in global economic growth and increasing uncertainties” would challenge the development of traditional telecommunications industries in the second half of this year.

Zhao, however, expressed optimism over industry investments being “driven by the further deployment of 4G networks, the application of big video and big bandwidth products, and massive connections”.

“We will vigorously develop smart pipes in association with telecommunication operators and help them to evolve into information operators,” he said.

ZTE posted a 9.33 per cent rise in net profit for the first half of this year to 1.76 billion yuan, up from 1.61 billion yuan in the same period last year, on higher 4G network equipment sales to China’s three telecommunications operators, as well as strong information-technology services demand from governments and businesses around the world.

Total revenue grew 4.05 per cent to 47.76 billion yuan from 45.89 billion yuan a year earlier.

It was lower than the 49.17 billion yuan average estimate from analysts surveyed by Thomson Reuters SmartEstimates.

Data from ZTE showed mainland China remained its primary source of business. In the first half, that translated to 58.22 per cent, or 27.8 billion yuan, of its total revenue.

The company still had to write off bad debts totalling 62.28 million yuan, which were considered unrecoverable.

Its board of directors on Thursday approved plans to apply for two credit facilities, covering the six months to December 31, from a syndicate of banks. These include a 27.8 billion yuan facility and a US$225 billion credit package to be used for production and operating requirements.

With the 4G capital expenditure cycle expected to eventually wind down, both ZTE and rival Huawei Technologies have been vocal about their desire to roll out extensive information and communications technology infrastructure to support more advanced services.

Chen Jie, the chief strategy officer at ZTE, said the company’s M-ICT strategy “will lead to a broader industry that is worth more than US$ 3.5 trillion, far bigger than the US$350 billion-a-year telecommunications market”.

Yan Zhanmeng, a senior analyst with Counterpoint Research, said such a strategy would ensure competitiveness in the “new areas of virtual and augmented reality, the Internet of Things, and cloud computing”.

Nomura analyst Huang Leping said in a report that “there is ample room for ZTE to achieve its long-term revenue growth target” by seeking new growth opportunities.

ZTE plans to double its revenue in 2020 from last year’s total of 100.19 billion yuan.