ZTE announced that U.S. Court agreed to end probation and declined to impose and penalties upon ZTE. Given the pessimistic market sentiment and previous concerns on further restrictions, this is a positive that removes the overhang on ZTE and helps to stabilize share price as it was previously under pressure. We are positive on ZTE’s business development and operation improvement.Maintain BUY, with unchanged TP of HK$29.65.
　　Positive as probation ends but should not over-read. ZTE announced that　the Company received an order from the United States District Court for Northern District Texas (the “Court”) declining to revoke probation or impose any penalties upon ZTE, and confirming that the term of probation and the term of the Monitor will end as scheduled on 22 March 2022.
　　We think this is a positive that removes the overhang on ZTE as 1) the market sentiment was pessimistic as China ADRs may face potential de-list from the U.S. stock exchange, 2) geopolitical pressures and 3) Sino-China tension persists. ZTE’s share price was depressed given 8.0x 1-yr forward P/E (vs. 2- yr avg. of 13.0x).
　　However, we recommend investors not to over-read this announcement.Neither does it mean that the Company will take immediate further restrictive actions, nor the U.S. will loosen its measures against Chinese 5G names (i.e., Huawei, ZTE, etc.). This event is a normal legal process. The ruling came on the final day of the probation (completion of 5 years).
　　FY21 results in line; focus more on operation and biz. deployment in　2022. ZTE’s FY21 revenue was RMB114.5bn, 12.9% YoY, in line with our previous forecast of RMB115.1bn. FY21 Net profit was RMB6.8bn, +59.9% YoY. Operating CF grew positively for three consecutive years. New 5G BTS planned for 2022 should be at a similar level, but ZTE is expected to have share gain in telco’s deployment.
　　Reiterate BUY with TP unchanged at HK$29.65. Potential risks include　Sino-U.S. trade tension, component restriction, and 5G deployment delays.