Company Coverage
ZTE Corporation (763 HK): 2Q26: Carrier Network Margin Miss Deepens Mix Drag; AI Server Business Remains Solid; Maintain HOLD
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$23.86
HK$22.30
-6.5%
HK$23.30
Analyst
Analyst
Highlights
- ZTE's 2Q26 revenue grew 11.5% yoy and 23.0% qoq to Rmb43.0b. Gross margins declined sharply by 7.7ppt yoy and 5.1ppt qoq to 23.2%, and net profit declined 44.6% yoy to Rmb1,442m (+10.1% qoq), below our expectations, primarily due to weak carrier network profitability.
- The margins deterioration seems structural for the next few years before 6G buildout takes off. Profitability will likely continue to remain weak.
- Maintain HOLD. Cut target price to HK$22.30.
Analysis
- 2Q26 results missed as carrier network margins deteriorated sharply on mix changes. 2Q26 revenue grew 11.5% yoy and 23.0% qoq to Rmb43.0b
with sales primarily driven by the Government & Corporate (G&C) segment. Gross margins deteriorated 7.7ppt yoy and 5.1ppt qoq to 23.2%, due to a combination of: a) a sharp decline in carrier network profitability on intrasegment mix changes; and b) higher contribution from the G&C segment which has a significantly lower margin as well. Partially offset by lower opex ratio, operating income declined 58.3% yoy and 56.0% qoq to Rmb691m, and net profit was well below market estimates at Rmb1,442m, declining 44.6% yoy.
Highlights
- ZTE's 2Q26 revenue grew 11.5% yoy and 23.0% qoq to Rmb43.0b. Gross margins declined sharply by 7.7ppt yoy and 5.1ppt qoq to 23.2%, and net profit declined 44.6% yoy to Rmb1,442m (+10.1% qoq), below our expectations, primarily due to weak carrier network profitability.
- The margins deterioration seems structural for the next few years before 6G buildout takes off. Profitability will likely continue to remain weak.
- Maintain HOLD. Cut target price to HK$22.30.
Analysis
- 2Q26 results missed as carrier network margins deteriorated sharply on mix changes. 2Q26 revenue grew 11.5% yoy and 23.0% qoq to Rmb43.0b
with sales primarily driven by the Government & Corporate (G&C) segment. Gross margins deteriorated 7.7ppt yoy and 5.1ppt qoq to 23.2%, due to a combination of: a) a sharp decline in carrier network profitability on intrasegment mix changes; and b) higher contribution from the G&C segment which has a significantly lower margin as well. Partially offset by lower opex ratio, operating income declined 58.3% yoy and 56.0% qoq to Rmb691m, and net profit was well below market estimates at Rmb1,442m, declining 44.6% yoy.
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
HK$23.86
HK$22.30
-6.5%
HK$23.30
Analyst
Analyst
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