ZTE-A and H:Pre-announcement and a price floor to stop the hemorrhaging

ZTE-A will not raise new issues below RMB30/share

    With the ZTE A-share limiting down today (-10%), the company has announcedthat it will not undertake the private placement at a price below RMB30/share(representing a pre-discount price of RMB33.3/share). Furthermore thecompany has pre-announced its preliminary FY17results showing a good setof numbers with revenue up 7% YoY, net profit in the mid-point of its guidancerange and operating free cash flow of RMB6.8bn (or RMB12.4bn adjusted forthe US fine, up 137% YoY).

    Solid result should calm some nerves

    ZTE indicated that revenue grew across the board in all business areas in FY17including telecom network, handsets and enterprise. Net profit wasRMB4.55bn which was the mid-point of the guidance given at the 3Q17result(RMB4.3– 4.8bn). Net assets grew 20% YoY due to improved profitabilitywhile the company achieved a 15.7% ROE, well above the 10% target requiredunder the employee share scheme.

    Earnings forecasts unchanged for the time being

    We have left our earnings forecasts unchanged for the time being given~RMB2bn of the pre-tax profit in FY17comes from the Nubia gain on sale andwe will look to fine tune our forecasts based on the more detailed release.