\u3000\u300 Shenzhen Zhenye(Group)Co.Ltd(000006) 3 Zte Corporation(000063) )
Key investment points
Sustained quality growth and significant improvement in cash flow
In 2021, the company continued to develop with high quality. The annual revenue was 114.52 billion yuan, with a year-on-year increase of 13%, the net profit attributable to the parent was 6.81 billion yuan, with a year-on-year increase of 60%, and the net profit attributable to the parent after deduction was 3.31 billion yuan, with a year-on-year increase of 219%; The net cash flow from operating activities was 15.72 billion yuan, a year-on-year increase of 54%.
It should be noted that due to the tight supply of chips, the company prepared the key materials in advance, and based on the principle of prudence and consistent with the previous policies, the provision for inventory falling price was withdrawn. The asset impairment loss was 1.52 billion yuan in 2021 (210 million yuan in 2020). By the end of 2021, the company’s inventory was 36.32 billion yuan and 33.69 billion yuan by the end of 2020, including 15.67 billion yuan of raw materials and entrusted processing materials in 2021 and 12.85 billion yuan by the end of 2020. In the single quarter of 2021q4, the company’s revenue was 30.7 billion yuan, a year-on-year increase of 12.4%, and the net profit attributable to the parent company was 960 million yuan, a year-on-year decrease of 38.8%. In 2021q4, 1.23 billion yuan of asset impairment loss was accrued, and 210 million yuan was accrued in 2020q4.
The business highlights of consumers / Chinese government enterprises / operators are diverse
Operator network: deeply participate in the large-scale construction of 5g and digitization in China and continue to cultivate the overseas value market; In 2021, the revenue reached 75.71 billion yuan, with a year-on-year increase of 2.3%, mainly driven by the growth of 5g wireless, server and other revenue. The shipment volume of 20215g base station ranked second in the world, the revenue of 2021q3 optical network ranked second in the market share of global operators, and the priority products of 2021 optical access and optical transmission remained the leader; The gross profit margin was 42.5%, with a year-on-year increase of 8.7pct, mainly due to the continuous optimization of cost structure.
Government enterprise business: seize the market opportunities such as new infrastructure, industry digital transformation and dual carbon economy, focus on core products and top customers, and strengthen channel capacity-building. In 2021, the revenue will reach 13.08 billion yuan, a year-on-year increase of 16.0%, the revenue of China’s government enterprise business will increase by more than 40% year-on-year, and the operating revenue of servers and storage will double year-on-year; The gross profit margin was 27.1%, a year-on-year decrease of 1.8pct, mainly due to the decline in the gross profit margin of international government and enterprise business.
Consumer business: continue to make efforts in terms of brands, products and channels. In 2021, the revenue reached 36.45 billion yuan, a year-on-year increase of 59.2%, of which the operating revenue of household terminals increased by more than 80% year-on-year, the operating revenue of mobile phone products increased by nearly 40% year-on-year, and 5gcpe accounted for the first place in the world; The gross profit margin was 18.2%, down year-on-year, mainly due to the decline in the gross profit margin of mobile phones and international home information terminals.
The revenue of Chinese market and international market reached 78.07 billion yuan and 36.45 billion yuan, with a year-on-year increase of 14.7% and 9.1%, and the gross profit margin was 37.4% and 30.7% respectively, with a year-on-year increase of ↑ 8.5pct and ↓ 6.5pct.
The cost structure was optimized and the profitability continued to improve
In 2021, the comprehensive gross profit margin was 35.2%, with a year-on-year increase of 3.6pct; Continuous optimization of expense structure: in 2021, the company’s sales expenses, management expenses, R & D expenses and financial expenses increased by 15.2%, 9.0%, 27.1% and 129.0% year-on-year respectively, accounting for 7.6%, 4.8%, 16.4% and 0.8% of revenue respectively, which were ↑ 0.1pct, ↓ 0.1pct, ↑ 1.8pct and ↑ 0.4pct year-on-year respectively. The rapid growth of financial expenses was mainly due to the impact of exchange rate fluctuations; Profitability continued to improve, with a net interest rate of 6.1% and a year-on-year increase of 1.5pct.
Strong self research ability to support product competitiveness and lead
ZTE microelectronics, a subsidiary of the company, is China’s top5 chip design company. In 2021, ZTE microelectronics had a revenue of 9.73 billion yuan, a year-on-year increase of 6.1%, and realized a net profit of 850 million yuan, a year-on-year increase of 61.1%. The company continues to strengthen investment in advanced technology, core IP, packaging and architecture innovation, digital and efficient development, and has the industry-leading chip whole process design ability. With the continuous iteration of process chip product, the company effectively supports the competitiveness of products, leads and further drives the improvement of the company’s profitability.
The proposal to repurchase no more than 2% A-Shares reflects confidence
In order to further improve and perfect the company’s long-term incentive and restraint mechanism, ensure the sustainable and healthy development of the company’s operation and promote the maximization of shareholder value, the board of directors of the company passed the proposal on submitting to the general meeting of shareholders to consider the company’s authorization plan for repurchase of A-Shares in 2002 on March 8. Reflect the company’s confidence in future operation. The type of repurchased shares is A-share ordinary shares issued by the company. The number of shares to be repurchased will be authorized by the extraordinary general meeting of shareholders. The board of directors will decide in accordance with relevant laws and regulations within the authorized amount of 2% of the issued A-share capital of the company on the date of deliberation and adoption of this proposal by the extraordinary general meeting of shareholders. The repurchased shares will be used in any of the following situations: (I) employee stock ownership plan or equity incentive; (II) convertible corporate bonds issued by the conversion company.
Profit forecast and investment suggestions
The company’s three-step strategy achieved excellent results in the recovery period and development period, and continued high-quality growth in 2021; At the same time, we will accelerate the expansion of it business (IT hardware bottom / automotive electronics / industry digital transformation), digital energy, terminals and other new fields, actively promote the second curve, accelerate the competitiveness of the company’s ICT end-to-end full range of products and digital solutions, and inject stronger impetus into quality growth.
In 2022, the company entered the beyond period. Based on its strong comprehensive strength of “end / network / cloud / platform”, the company is expected to start a new round of growth in the tide of digitization. It is expected that the net profit attributable to the parent company will be 8.04 billion yuan, 9.38 billion yuan and 10.88 billion yuan in 202224, and pe15 times, 13 times and 11 times to maintain “buy”.
Risk tip: the impact of China US trade policy exceeded expectations; The impact of the epidemic on 5g construction progress exceeded expectations.
