Citi has issued a research note raising its price target on ZTE (00763) from HK$25.4 to HK$25.9, while maintaining a "Neutral" rating on the stock. The brokerage has trimmed its net profit forecasts for 2026 and 2027 by 19.4% and 14.5%, respectively, citing a shift in revenue mix toward lower-margin products. For 2028, projections remain largely unchanged. Meanwhile, revenue estimates have been lifted by 2.6% to 3% to reflect robust demand for computing power.

The company's second-quarter revenue grew 12% year-on-year to RMB 43.037 billion, exceeding market expectations by 7%. Net profit, however, fell 45% to RMB 1.442 billion, still coming in 2% above consensus estimates. The revenue outperformance was driven by growth in computing power and AI infrastructure businesses, which offset the ongoing decline in domestic operators' capital expenditure.

That said, gross margin contracted sharply to 23.2%—down 7.7 percentage points year-on-year and 5.1 percentage points below Citi's own forecast—as the revenue mix tilted toward lower-margin computing power and server hardware. This dragged operating profit down 58% year-on-year, significantly underperforming the brokerage's expectations by the same margin.