ZTE announced 1Q22 results. 1Q22’s revenue/NP to shareholders grew 6.4%/1.6% YoY to RMB27.9bn/RMB2.2bn, respectively. We think the results are solid and largely in-line with our expectations. Looking forward, we remain positive on ZTE’s business development and continuing improvement of operation. Maintain BUY, with unchanged TP of HK$29.65.
　　1Q22 results in line with expectations. 1Q22 revenue/NP to shareholders　accounted for 22%/28% of our full year forecasts. 1Q22’s GPM increased to 37.8% vs. 35.2% in FY21, led by higher GPM from telecom segment. NP before extraordinary items grew 117% YoY, suggesting an improvement of business operations. Looking forward, we expect FY22E revenue to grow at 12.9% YoY, while NP to shareholders to grow at 15.7% YoY.
　　Telco’s FY22E capex to grow 4% YoY and ZTE to gain share. China　telecom operators announced FY22E capex budget, a total of RMB352bn (4% YoY increase). The pace of 5G BTS deployment are steady, with 670k 5G BTS planned for 2022 (vs. 640k/650k for 2020/21). However, 5G-related capex budget reduced slightly by 5%, due to BTS de-spec trend as the growth momentum for 5G investment is easing. We maintain our positive outlook for ZTE and believe its carrier revenue growth should exceed the telco’s capex growth (6.1% vs. 3.9%). The Company will still be a key beneficiary as the telco is shifting its investment from 5G infrastructure to industrial digitalization.Currently, ZTE’s share in telco’s capex is ~22.3%, which we expect to rise slightly to 22.8% in 2022.
　　Maintain BUY with TP unchanged at HK$29.65. Current valuation is　attractive after significant broad market pullback as investors have concerns on 1) China lockdown resulting in a weaker than expected economy; 2) Russian/Ukraine conflict is driving higher material costs; 3) lingered supply constraints and worldwide inflation. Potential risks include Sino-U.S. trade tension, additional component restriction/technology ban, and 5G deployment delays.