Goldman Sachs: Lower ZTE Corporation (00763) target price to 37.5 Hong Kong dollars, first quarter gross profit margin under pressure but computing business growth strong.

Goldman Sachs released a research report stating that, in response to the first quarter performance, it has lowered ZTE Corporation's (00763) annual profit forecasts for 2026 to 2028 by 8%, 7% and 6%, mainly reflecting the decrease in gross profit margin. The target price for the Hong Kong stock has been lowered by 7% from 40.4 Hong Kong dollars to 37.5 Hong Kong dollars, based on a forecasted 2027 P/E ratio of 18.2 times; The target price for the A-share has been lowered from 62.6 Chinese yuan to 58.2 Chinese yuan, maintaining a "neutral" rating for ZTE Corporation's H-share and A-share. ZTE Corporation's first quarter revenue increased by 6% year-on-year to 35 billion Chinese yuan, in line with the bank's expectations. The proportion of revenue from related businesses to total revenue increased to 27%, higher than the 24.6% for the whole year of 2025. However, the gross profit margin decreased from 29.4% in the fourth quarter of last year and 34.3% in the first quarter to 28.3%, attributed by management to a decrease in domestic telecom capital expenditure, resulting in a decrease in contributions to domestic network product revenue.