The Zhitong Finance App learned that Citibank released a research report saying that ZTE (00763)'s net profit for the third quarter beat expectations, but operating profit was lower than expected. The bank gave ZTE H shares a “neutral” rating, with a target price of HK$25.9.

ZTE's revenue for the third quarter of this year was RMB 38.8 billion, up 34% year on year, 6% higher than market expectations; gross profit of RMB 9.5 billion was 7% higher than market consensus, up 27% year on year, and gross profit margin was 24.6%, down 1.3 percentage points year on year, 0.2 percentage points higher than consensus.

The bank pointed out that operating profit was only about 88 million yuan, 79% lower than the consensus. As operating expenses increased 17% year over year and higher than the consensus 11%, the EBIT margin narrowed to 0.2%. However, net profit was RMB 1.3 billion, a sharp increase of 394% over the previous year, 30% higher than the consensus, mainly driven by fair value earnings of financial assets of RMB 691 million.

The bank believes that, driven by stronger demand for artificial intelligence computing power and chip supply, there is room for an increase in revenue forecasts for the second half of the year, and it is expected that strong AI computing power growth will continue until 2027, driven by the volume of supernode servers.

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