ZTE(000063)：A DEFENSIVE PLAY WITH LONG RUNWAY FOR GROWTH

　　ZTE’s recent update on AI-related development: At a recent investor relations　event, the Company shed light on its progress in AI development for the B2B sector.The Company featured a foundational AI model, a R&D model (AI-assisted programming), a telecom model (streamline telecom carriers’ operations), and an industry-specific model (focusing on urban governance) aimed to be rolled out between year-end and early 2024. Capitalizing on the AI momentum spurred by ChatGPT in 1H23, the Company is set to debut new computational products and is on track to launch an AI server, specifically engineered for intensive model training.
　　We observe rising popularity of satellite communication, as Huawei’s Mate60Pro could support satellite calling. ZTE's Axon 50 Ultra can also facilitate　two-way communication (messages) via the BeiDou satellite system. In a recent milestone, ZTE partnered with China Telecom, UNISOC and Vivo and achieved the first-ever domestic 5G NTN (non-terrestrial network) field test in China. This accomplishment signifies the successful establishment of a bi-directional connection for 5G NTN mobile phones, directly linked to satellites in a real-world setting. We believe ZTE will be a key beneficiary in this market, considering more consumer electronics will be equipped with satellite communications.
　　5G to 6G, into the next chapter: With increasing interest in satellite communications, the market is waiting for the progress of 6G development. CAICT predicted that the number of 6G terminal connections of various types will increase by more than 30 times compared to 2022, and the average monthly traffic will increase by more than 130 times, which will significantly drive the demand for telecommunication equipment. Given ZTE’s strong presence in the relevant fields, it is well-positioned to extend its leadership into the 6G competition.
　　H-share: maintain BUY with unchanged TP of HK$29.4. We update TP of A- share to RMB39.5 based on 16.5x (3-year avg.) rollover FY24E P/E. Maintain　BUY. Currently, the Company is experiencing steady growth, marked by a continuous increase in market share and a noticeable enhancement in gross profit margins. Key areas of focus include: 1) the Company's progress in the server market, especially for AI servers, 2) the development and commercialization progress of foundational large models in their v2.0 iteration, 3) R&D efforts in satellite communication, as well as investment opportunities in related industry chains, and 4) the latest development in the realm of 6G. Potential risks include China-US trade tensions, additional component restriction/technology ban, and 5G deployment delays.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。