ZTE (000063): Reborn in TMT Core Assets
After the rebirth of external sanctions, the company’s fundamentals recovered rapidly, and internal management and compliance levels improved. In the new 5G cycle, we continue to maintain its core recommendation logic: 1. The short-to-medium-term fundamentals continue to improve, as the leading global leaderEquipment vendors will fully enjoy the dividends of global 5G construction in the next 3-5 years; 2. The company will continue to focus on strategy, continue to optimize internal governance and compliance, and break through the cyclical nature of ICT layout to strengthen long-term growth characteristics.
Communication network equipment is the core infrastructure of TMT midstream.
Carding the TMT industry chain, electronics are located upstream, computers and the media Internet are located downstream, and the communications industry is roughly located in the middle reaches.
Network equipment is the most core infrastructure in the communications field. Major equipment vendors such as Huawei ZTE are located at the most core switches in the infrastructure, and will enjoy the benefits of technological transformation and industry transformation to the greatest extent.
The concentration of the communication equipment industry is constantly increasing, and a four-legged pattern has been established. ZTE is an important force.
In the past 30 years, it has transformed into communication technology. The global equipment market structure has continuously evolved and competition among internal main equipment manufacturers has continued to increase.
In the 1G / 2G era, the global communications equipment market is dominated by traditional European and American manufacturers. In the 3G / 4G era, ZTE, Huawei and other internal manufacturers have cornered to overtake. After 2017, ZTE and Huawei’s global market share totaled more than 30%.
In the short to medium term, “internal repair + external training” will help global expansion restart.
Since 2019, the operator’s network business (wireless + wired) has resumed rapidly and the market share is stable.
“Internal repair”: 5G product research and development and industry chain capabilities lead.
We expect that the domestic operator’s market share will remain stable (second only to Huawei). The 4G network expansion in 2019 will bring performance guarantees. The peak period of domestic 5G construction in 2020-2023 will continue to drive performance growth.
“External training”: The improvement of compliance level promotes the elimination of overseas customers’ concerns about supply chain risks. The advantages of cost, technology and response speed will continue to be reflected, and the expectations for overseas market expansion may be more optimistic.
In the long run, compliance risks will be basically cleared after external sanctions are implemented, internal control levels and operating efficiency will be improved, focusing on the carrier’s main channel, expanding the ICT convergence market, and strengthening long-term growth characteristics while enjoying the dividends of the 5G cycle boom.
5G applications are multi-scenario, and the demand and construction cycle is longer than 3G / 4G. The short-to-medium-term cycle attributes are divided. The new industry dividend and business model have enhanced the growth attributes. ICT integration is the only way for information technology to penetrate into various industries. AI, Cloud computing / big data, the Internet of Things, etc. will help traditional equipment vendors break through the cycle; ZTE actively cooperates with operators and vertical industries to expand from equipment vendors to communication technology application solution providers, and continuously enhance its growth attributes.
Maintain profit forecast and maintain BUY rating.
Taking into account the progress of 5G progress, the industry 杭州夜网论坛 fundamentals trend will definitely change in the next two years. It is estimated that the company’s net profit attributable to mothers will be 50 from 2019 to 2021.
1.3 billion, corresponding to PE 33X, 29X, 22X.
Compared with the domestic and foreign equipment manufacturers during the peak period of 3G / 4G construction, the company was given 36X PE in 2020, and the current estimated advantage is obvious.
Maintain BUY rating.
Risk warning: 5G investment scale is not up to expectations; external environmental sanctions or restrictions.