ZTE's (the "Company") 1QFY22 results were in line with our expectations. Revenue increased by 6.4% yoy. Gross profit margin increased by 2.4 ppt yoy to 37.8%. Shareholders' net profit increased by 1.6% yoy, while shareholders' net profit after extraordinary items was up by 117.1% yoy.
　　We expect the Company's three main business lines to all maintain steady growth. We expect that China's 5G base stations volume will be about 600,000 in each year of 2022-2023. We expect the market share of the Company in domestic telecom equipment to improve. We expect carriers' network business to grow by double-digit percentage in 2022. We expect that the broad market space and the Company's active channels expansion will continue to bring steady growth momentum to government and corporate business. Due to mixed effects of active brand investment and channel building, as well as chip shortage and impact from the pandemic, we expect consumer business to still grow in 2022, but the growth rate will largely slow compared to 2021.
　　We expect gross margin to be stable in FY22. Given that 5G business is already relatively stable, we expect gross margin of carriers' network business to be stable; overall, we expect gross margin to be stable and in FY22 to be between 35%-36%.
　　We revise down TP from HK$26.00 to HK$23.50 but maintain the investment rating as "Buy". We revise down FY22-FY24 EPS forecasts by 1.2%/ 2.2%/ 1.8%, respectively. The TP represents 11.3x, 10.7x and 10.4x FY22-FY24 PER.