Bank of China International: Lowering ZTE's (00763) Target Price to HK$29.65, Reiterating “Buying” Rated Servers to Accelerate Revenue Growth

The Zhitong Finance App learned that Bank of China International released a research report stating that it lowered the target price of ZTE (00763) from HK$31.09 to HK$29.65, reaffirming the “buy” rating. The target price is estimated at 26 times based on the 2027 forecast price-earnings ratio, which is equivalent to one standard deviation higher than the historical average of the past ten years. The bank pointed out that the company's revenue in the third quarter increased 34% year on year to RMB 38.8 billion, which was 11.5% faster than in the second quarter. It was mainly driven by strong demand for servers and overseas expansion to offset the weak spending of domestic telecom operators, but the increase in the share of computing business revenue continued to depress profit margins.

ZTE's net profit for the third quarter increased 394.5% year over year to RMB 1.31 billion, mainly affected by the lower base. The bank raised ZTE's 2026-2028 revenue forecast by 2.5%, 3%, and 3.5% respectively to reflect increased demand for artificial intelligence infrastructure. At the same time, considering short-term profit margin pressure, it lowered its profit forecast for the same period by 1.1%, 7.8% and 4.5%, respectively. The target price reduction also reflects related profit forecast adjustments.