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　　机构：交通银行

　　评级：sell

　　2017 results in line: ZTE’s revenue grew 7% YoY to RMB109bn in 2017 with EPS of RMB1.09, in line with the preliminary results. GPM remained stable at 31.1% . Excluding the US penalty at the end of 2016, the earnings rebound in 2017 was largely driven by revenue growth on stable GPM, and gains from disposal of Nubia, which more than offset the rise in R&D expenses. Revenue growth was largely driven by strength in optical networking, pick-up in government/corporate business in 2H17 , and handset sales in the international market.  

　　China Unicom capex to remain depressed for 2018. China Unicom reported 2017 results on 15 Mar and expects to spend RMB50bn in capex in 2018 , with a focus on expanding the 4G network in key cities with high data traffic. We expect capex spending from the three Chinese telcos to remain depressed for 2018. 5G spending will likely be very limited this year as some selected cities begin 5G trials. We continue to expect 5G to be a long cycle with a gradual ramp-up. 

　　LOFty valuation: We continue to believe market expectations for 2018 may be overly optimistic, with the current valuation suggesting high expectations for 5G ramp-up. Increase in R&D spending this year will also pressure earnings growth, in our view. However, we believe the asset disposals over the past year suggest the company has become more focused in its core networking equipment business. Shares trade at 23x 2018E P/E, 2 SD above 3-year historical average forward P/E of 15x. We fine-tune our 2018/19 EPS estimates by +1%/-1%. Our unchanged TP of HK$23.00 is based on 17x 2018E P/E. Maintain Sell.

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