\u3000\u300 Shenzhen Zhenye(Group)Co.Ltd(000006) 3 Zte Corporation(000063) )
Matters:
Announcement of the company: the company received the judgment of the Federal District Court for the Northern District of Texas on March 22, 2022 (US time), which is related to the hearing on the revocation of probation held in the Federal District Court for the Northern District of Texas on March 14, 2022 (US time); And the company's announcement dated October 7, 2018 on the amendment to the term of office of the supervisor. The judgment ruled that Zte Corporation(000063) 's suspended sentence (i.e. the suspended sentence will expire on March 22, 2022 (US time)) will not be revoked without any penalty, and confirmed that the term of office of the inspector will end on March 22, 2022 (US time).
Guosen communication's view: 1) after the term of office of the compliance supervisor expires, the impact of American events on the company's performance will be gradually eliminated; 2) From the regional perspective, the company's overseas business is expected to recover to the level before 2016, accounting for more than 40% of revenue; From the perspective of business, the company will accelerate the expansion of vertical fields, the upstream raw material procurement channels may no longer be limited, and the proportion of overseas business revenue is expected to increase from 10% to 30% in the next three years; 3) The company attaches importance to compliance construction, continues to increase R & D investment and operates steadily; 4) Investment suggestion: under the background of digital economy, the company has the advantages of more than 30 years of deep cultivation in the field of ICT, put down the shackles and start again. The company prepared the key materials in advance in Q4 in order to prevent the shortage of global chip supply. The asset impairment loss in Q4 in 21 was about 1.1 billion yuan, and the performance in 21 was lower than expected. Therefore, we lowered the profit forecast. It is estimated that the company's operating revenue in 22-24 years will be 129.1/145.2/159.7 billion yuan respectively (the original forecast is 132.6/1495164.5 billion yuan), and the net profit attributable to the parent company will be 79.89/10.1 billion yuan respectively (the original forecast is 9.0/104/11.5 billion yuan), corresponding to the current share price PE of 16 / 14 / 12x, maintaining the "buy" rating.
Comments:
The company's performance has been affected by relevant events twice, and the impact of events in the United States will be gradually eliminated at the end of the term of office of the compliance supervisor
The incident originated from the investigation of Zte Corporation(000063) filed by the U.S. government in 2012. In March 2016, the U.S. Department of Commerce accused Zte Corporation(000063) of violating the U.S. export control policy towards Iran and imposing an embargo on Zte Corporation(000063) . In March 2017, Zte Corporation(000063) reached an agreement with the U.S. Department of Commerce, the Department of justice and the Department of finance, and paid a fine of $890 million, punished relevant employees and set a seven-year inspection period. The company's letter of dismissal from the United States in November 2017 was not suspended, and the company was not punished according to the requirements of the letter of dismissal from the United States in November 2018. Finally, in July 2018, Zte Corporation(000063) subscribed a fine of US $1.4 billion (including US $400 million as security deposit) and reached a settlement after changing the management, and Zte Corporation(000063) announced the "lifting of the ban".
At the end of the term of office of the compliance supervisor, the impact of events in the United States on the company will be gradually eliminated. During the compliance observation period, the company invested a lot of energy and funds to meet the compliance requirements. In addition, the brand and customer trust had a certain impact in Europe and the United States, affecting the company's overseas business expansion. At the end of the term of office of the compliance supervisor, the impact is expected to continue to be eliminated.
Reviewing the operation of the company in the past ten years, the company suffered major losses due to events in the United States twice in 2016 and 2018. 2016 US Department of Commerce entity list event. In 2016, the growth rate of the company's overall revenue was relatively normal, and the gross profit margin of each business module returned to the highest level in history. As the solution to the US entity list event was a fine of US $890 million, the company's net profit attributable to the parent company in 2016 was a loss of RMB 2.357 billion. In 2018, the United States issued an injunction on Zte Corporation(000063) to . As the ban suspended the company's overall business for three months, resulting in the loss of some customers and a sharp decline in revenue in the current year, the company finally reached a settlement with Zte Corporation(000063) will pay a total civil penalty of US $1.4 billion (one-time payment of US $1 billion and an additional penalty of US $400 million suspended during the ten-year supervision period). The company's net profit attributable to the parent company in 2018 was RMB 6.984 billion. If the US fines paid in 2016 and 2018 are added back, the company's overall operation has been stable and its performance has increased steadily in the past 10 years.
Overseas business growth can be expected, and the second curve accelerates the expansion
1. From the regional perspective, overseas business will resume growth
The epidemic has caused network overload, and the construction of global network infrastructure will be further upgraded. Under the outbreak of the epidemic, when household households use bandwidth intensive services of video and games at the same time, the network traffic increases rapidly and the network infrastructure encounters a bottleneck. According to Reuters, youtube, Netflix and Facebook account for an average of 80% of the overall Internet bandwidth of France's four major telecom operators; Telecom Italia said that after the closure of the city, the network traffic increased by more than 70%, mainly from online games; The German commercial Internet switching center reached the peak of historical traffic on the evening of March 10, 2020, exceeding 9.1tbit/s. According to the statistics of American cable company Comcast, in March 2020, since the pandemic in the United States, the traffic of audio and video calls on the Internet in the United States has more than tripled, with the growth of video consumption traffic by 38% and game downloads by 50%.
There is a large space for overseas 5g network construction, and the company's overseas business is expected to recover to the level of 2016. According to the prediction of GSMA, the penetration rate of 5g connections in developed countries and regions will reach 53% and 164 million in developed regions of Southeast Asia in 2025; North America has a penetration rate of 48% and 219 million connections; The penetration rate in Europe reached 35% and the number of connections reached 236 million. By 2021, China has built 1.425 million 5g base stations, accounting for 70% of the global base stations, while the overseas market will further upgrade and increase the demand for network construction in the next few years. In the past five years, the company's overseas business has been greatly affected by the events in the United States. During the golden period of the first round of 5g overseas construction in 2018, the company missed the key projects of many large countries because of the events in the United States. We believe that with the elimination of the impact of the events in the United States, the company's overseas business is expected to return to the level before 2016, accounting for more than 40% of its operating revenue.
2. From the perspective of business, the second curve of the company will accelerate the expansion
Road builders of digital economy accelerate the extension of the second curve. The company continues to expand new business and accelerate its efforts in the fields of it, digital energy and smart home. In the field of it, the company strengthens the expansion of automotive electronics business; Set up two special teams in mining, metallurgy and steel industries to help the digital transformation of the industry with 5g application, it and big data.
In the field of digital energy, the company has established a digital energy product business department to strengthen the operation of products such as power supply and IDC data center, and actively expand new energy business. In smart home, the company has set up a smart home product line to vigorously expand consumer oriented home intelligent products. The company aims to achieve a compound annual growth rate of 40% in the second curve business during the 14th Five Year Plan period, and increase the proportion of revenue from 10% to 30%. The company's commercial expansion in various fields will no longer be limited by upstream components. At the same time, the company is also increasing domestic independent and controllable investment.
The company has achieved initial results in vertical cooperation. In terms of it business, the company, together with operators and industrial chain partners, provides digital solutions and services for industry customers. More than 60 innovative demonstration applications have been carried out in 15 industries such as electronic manufacturing, steel, metallurgy, mining, electric power, rail transit, port, new media, culture and tourism. In terms of automotive electronics, the company's automotive operating system has passed asil-d certification, and there is also layout in terms of vehicle chip and SOA basic software. Strategic agreements have been signed with FAW, Saic Motor Corporation Limited(600104) , Neusoft Ruichi, Hangsheng electronics and other partners to jointly promote the independent core capacity construction of automobile operating system, chip and basic software. In terms of digital energy, the company has profound accumulation in the fields of communication power supply, lithium battery and base station stack, and the product competitiveness and market share have been steadily improved. The whole series of 5g power supplies are widely used in 4500005g stations around the world. In the photovoltaic field, the global cumulative installed capacity of photovoltaic is 400MW +, which is widely used in communication network energy storage, photovoltaic power generation, microgrid energy storage, etc.
Attach importance to compliance and steady operation
The company attaches importance to compliance construction and establishes a good brand image. In July 2018, the company established the export compliance committee of the board of directors, deliberated and approved the working rules of the export compliance committee of the board of directors, established an export control compliance expert team, increased the personnel of the legal compliance team, constructed and optimized the company's export control compliance management structure, system and process, and comprehensively strengthened online and offline compliance training internally. We believe that after the US incident, the company will reshape a good brand image and establish the company's confidence in the effective operation and continuous improvement of the compliance management system.
The company continued to increase investment in R & D, and the sales expenses and management expenses were well controlled. In 2021, the company invested 18.8 billion yuan in R & D, with a year-on-year increase of 27.1%. From 2018 to 2021, the R & D investment continued to increase. In the same period, the sales expense rate was 11% / 9% / 7% / 8% and the management expense rate was 4% / 5% / 5% respectively. The overall control was good.
Investment advice
In recent years, the company's fundamentals have continued to improve and its operation is stable and upward. Under the background of digital economy, the company has the advantage of more than 30 years of deep cultivation in the ICT field, put down the shackles and set off again. The company prepared the key materials in advance in Q4 in order to prevent the shortage of global chip supply. The asset impairment loss in Q4 in 21 was about 1.1 billion yuan, and the performance in 21 was lower than expected. Therefore, we lowered the profit forecast. It is estimated that the company's operating revenue in 22-24 years will be 129.1/145.2/159.7 billion yuan respectively (the original forecast is 132.6/1495164.5 billion yuan), and the net profit attributable to the parent company will be 79.89/10.1 billion yuan respectively (the original forecast is 9.0/104/11.5 billion yuan), corresponding to the current share price PE of 16 / 14 / 12x, maintaining the "buy" rating.
Risk tips
1. Impact on overseas business development; 2. The development of innovative business is less than expected; 3. Impact of shortage of upstream raw materials;
