ZTE announced its 2020 financial report on the evening of March 17. The financial report showed that ZTE achieved revenue of 101.45 billion yuan in 2020, a year-on-year increase of 11.81%; net profit was 4.26 billion yuan, a year-on-year decrease of 17.25%.
The reason for the decline in net profit
ZTE explained in its financial report that it was mainly due to the one-time pre-tax income of 2.66 billion yuan from asset disposal in the third quarter of 2019, a large increase Due to net profit in 2019; basic earnings per share was 0.92 yuan.
If we do not consider the impact of the large asset disposals mentioned by ZTE in 2019, the profit level in 2020 is already close to the historical best level in 2017.
If the one-time asset disposal income in 2019 (2.662 billion) is removed, the full-year profit in 2020 will increase by 76% year-on-year, rather than negative growth.
The main businesses of the three major segments all achieved growth
ZTE focuses on the three major segments of "operator network, government and enterprise business, and consumer business". In 2020, the revenue of these three segments all achieved year-on-year growth.
Among them, ZTE’s operator network business revenue in 2020 was 74.018 billion yuan; the proportion of operator business increased from 57% in 2015 to 73% in 2020. The operating income of government and enterprise business was RMB 11.272 billion; the operating income of consumer business was RMB 16.160 billion, both achieving year-on-year growth.
Gross profit margin "diving"?
It is reported that the company's gross profit margin was stable at around 30% before 2018. In 2018, the company's business structure began to adjust, and the proportion of operator business with higher gross profit margin increased. This affected the company's overall performance in 2019. The gross profit margin is 37.17%.
However, in 2020, the company's gross profit margin dropped to 31.61%, a decrease of 5.5% from the same period last year. The annual report stated that this was mainly due to the increase in the proportion of revenue from products with low gross profit margins.
Divided according to business segments, in 2020, the company's operator network business gross profit margin was 33.79%, the government and enterprise business gross profit margin was 28.82%, and the consumer business gross profit margin was 23.58%.
R&D investment reaches a new high
Since 2017, the company’s proportion of R&D expenses has continued to increase. Even in the most difficult year of 2018, the company still did not reduce R&D investment.
From 2015 to 2019, they were 12.2 billion, 12.76 billion, 12.96 billion, 10.96 billion and 12.548 billion yuan respectively. By 2020, they were 14.797 billion yuan. R&D investment has exceeded the 10 billion mark for six consecutive years.
In 2020, ZTE has 31,747 R&D personnel, a year-on-year increase of 12.18%.
In addition, as of the end of 2020, ZTE had approximately 80,000 global patent applications and held approximately 36,000 valid authorized patents. Among them, there are more than 4,270 chip patent applications and more than 1,800 authorized chip patents.
Looking forward to 2021
ZTE expects to achieve a net profit attributable to ordinary shareholders of listed companies of 1.80 billion to 2.40 billion yuan in the first quarter of 2021, a year-on-year increase of 130.8% to 207.7 %.
Looking forward to 2021, the Ministry of Industry and Information Technology has set a goal of building 600,000 5G base stations throughout the year, which will be further accelerated compared to 2020. As ZTE’s share increases, the company’s subsequent growth is worth looking forward to.