ZTE hikes H1 profit on back of 4G growth

The Chinese telecommunications equipment provider on Monday lifted its forecast for first-half profit citing strong earnings from 4G infrastructure operations.
Written by Cyrus Lee, Contributor

Net profit for the first six months of 2014 is revised to be between 1 billion (US$161 million) and 1.15 billion yuan, an increase of between 223 percent and 271 percent from a year earlier, ZTE said in a statement to the Hong Kong stock exchange on Monday night after the market close.

The revised profit estimate outstripped its earlier projection of between 800 million and 1 billion yuan for the period.

ZTE attributed the profit hike to factors such as: “on-going strengthening of management over contract profitability”; “improvement in gross profit margin for international projects”; and “an increase in the operating revenue from domestic 4G systems projects as a percentage of total operating revenue.”

Shares of ZTE opened in Hong Kong on Tuesday up 3.2 percent after the announcement of profit revision, and surged over 8 percent at close of trading .

China Mobile, the country’s largest telecommunications operator, is one of the reasons for ZTE's revenue growth in 4G.  Having already established 320,000 TD-LTE 4G base stations across more than 300 cities in China, China Mobile, announced it will spend almost half of its total 225.2 billion yuan investment this year on mobile networks, aiming to establish a total of 500,000 TD-LTE 4G base stations by year end.

But it is not all good news for telecom equipment providers like ZTE and Huawei. The three biggest operators - China Mobile, China Unicom and China Telecom - last Friday jointly announced a new business, China Communications Facilities Services Corp Ltd. The company, also known as Tower Company, will focus on the construction, maintenance and operation of telecom towers and ancillary facilities in a bid to avoid infrastructure duplication among the three players.

The total registered capital of the joint venture stands at 10 billion yuan (US$1.6 billion). China Mobile owns a 40 percent stake in the new firm while China Unicom and China Telecom hold the remaining 60 percent with shares of 30.1 percent and 29.9 percent, respectively, according to the report.

While indicating the announcement is a positive step for all three telecom operators to reduce their capital expenditure, a July 11 research report from investment bank Nomura expects Tower Company to have “a neutral impact to core telecom equipment vendors such as ZTE, Fiberhome and Huawei since the announcement confirmed that telecom equipment (base station) still belongs to the three telecom operators."

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