CCB International released a research report stating that ZTE (00763) delivered strong interim results with revenue growth of 15%, primarily driven by favorable demand in government and enterprise business and growth in consumer business, with segment revenues increasing 110% and 8% respectively during the period. However, second-quarter gross margin narrowed by 8.1 percentage points year-on-year to 30.9%. The firm expects that margin pressure is due to the increased proportion of lower-margin server sales in the government and enterprise business and higher shipment ratios of AI servers. CCB International maintains an outperform rating on ZTE and raises its target price from HK$33 to HK$40.

The firm believes that computing demand from domestic internet service providers will remain strong for the remainder of this year, and believes ZTE's component inventory can support its continued robust growth. The firm currently forecasts ZTE's government and enterprise business full-year revenue to grow 104% year-on-year, with growth of 14% expected next year. While gross margins may continue to face pressure during the year, the firm believes they will not deteriorate further.