ZTE released 3Q21 results, with revenue/NP growth of 14.2%/107.6% YoY and GPM continued to improve to 38.0% (vs. FY20: 31.6%). 9M21 revenue/NP accounted for 71.6%/74.3% of our FY21E estimates. We remain positive on ZTE as we believe the Company will be the major beneficiary of global 5G deployment. We maintain BUY rating, with TP at HK$33.06 based on 15x FY22E P/E.
We raised the gross margin estimates for 2021E-23E. We raised 2021E GPM by 1.1ppt/0.7ppt to reflect continued gross margin improvement. GPM was up to 38.0% in 3Q21 (vs. 29.9%/36.8% in 3Q20/2Q21). We slightly adjust our GPM estimates for FY22E-23E as we believe GPM will remain at 35%+ due to the adoption of self-developed chips and better operating efficiency. Operating cash flow continued to be strong (189% YoY for 9M2021).
Similar 5G capex plan in 2022E but ZTE will outperform with share gain. China has built 993k 5G BTS as of 3Q21 , according to recent announcement made by MIIT. We estimate 5G BTS net-add will reach 692k in 2021 (200k 700MHz 5G BTS to be completed within 2021), compared to 588k in 2020. As for 5G BTS tender in 2021, we saw lower frequency spectrum equipment accounted for the majority of 5G BTS tender (2021: 700MHz/2.1GHz, vs. 2020: 2.6GHz/3.5GHz). Following the de-spec trend, we expect 5G Capex plan to maintain at a similar level in 2022E, but ZTE will continue to outperform with additional share gain in China (31% in 2020, 33% in 2021E, and 35% in 2022E).
Maintain BUY with unchanged TP of HK$33.06. We maintain our TP at HK$33.06 based on 15.0x FY22E P/E. Trading at 11.4x FY22E P/E, the stock is attractive in our view. We are positive on ZTE as we believe the company will enjoy share gain in telcos’ 5G-related deployment in the following years. Looking forward, we expect telcos will continue a healthy Capex deployment in FY22E similar to FY21 plan. Risks include US-China disputes, component restriction, and 5G deployment delays.