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April 13 2006


Telecommunications equipment maker ZTE Corp. (0763.HK) said its 2005 net profit rose just 1.2% from the year earlier on rising operating costs due to overseas expansion.

Its net profit for the year ended Dec. 31, 2005 was CNY1.29 billion, up from CNY1.27 billion in 2004.

The result was higher than market expectations of CNY1.24 billion, according to the average forecast of 13 analysts surveyed by Thomson Financial.

ZTE's 2005 revenue was CNY21.58 billion, up from CNY21.22 billion in the previous year.

The company declared a final dividend of CNY0.25, the same as for 2004.

China ZTE Corp 2005 Net Profit Up Slightly To CNY1.29B-2-

ZTE's wireless communications division accounted for about 40% of total revenue, while its handsets manufacturing unit contributed about 20%.

ZTE's share price has jumped more than 25% since the beginning of this year, on investor expectations of an earnings boost from the anticipated launch of China's third-generation mobile network. Its shares traded in Hong Kong closed 1.4% higher at HK$32.85 Thursday.

UBS said in a research report that ZTE is one of the only four telecommunications vendors in China offering completed hardware solutions for the homegrown 3G standard called TD-SCDMA, or Time Division Synchronous Code Division Multiple Access.

"It was an early supporter of TD-SCDMA, and in our view it is well positioned to capture market share," UBS said.

However, analysts said significant 3G revenue won't be realized in 2007 while the Chinese government is still testing the TD-SCDMA network.

The company completed an initial public offering on the Hong Kong Stock Exchange in late 2004, listing Hong Kong dollar-denominated H shares.

The company also has yuan-denominated A shares traded on the Shenzhen Stock Exchange.