ZTE delivered robust sales growth in 1H25, with revenue rising 15% YoY to

RMB71.6bn. NP declined 12% YoY to RMB5.1bn. A shift in product mix toward higher-volume servers weighed on profitability, dragging GPM and NPM down by 8.0ppt and 2.1ppt to 32.5% and 7.1%, respectively. By segment: 1) Carrier revenue (49% of 1H25 sales) declined 6% YoY, reflecting subdued telecom capex in China (-9% YoY in 2025 from CM/CT/CU combined, per their guidance); 2) Consumer revenue (24%) grew 8% YoY to RMB17.2bn, supported by strong overseas smartphone shipments; 3) Government & Enterprise (27%) emerged as the key growth engine, with revenue surging 110% YoY, which was largely fuelled by over 200% growth in server and storage sales, with AI servers accounting for ~55% of total server sales. We believe ZTE is well-positioned to sustain robust growth in the coming years, backed by the AI infrastructure investment cycle and domestic semiconductor

localization trends. Maintain BUY rating while raising H-share TP to HK$42 and A-share TP to RMB57.

Carrier: Segment revenue declined 6% YoY to RMB35.0bn in 1H25, mainly due to continued softness in domestic telecom capex, though overseas sales were stable. Despite near-term headwinds, we expect the pace of segment decline to moderate through new product offerings and recent contract wins (e.g., antenna, switch, AI server tenders). Segment GPM

came in at 52.9% (-1.4ppt YoY). We forecast 2025 Carrier revenue to reach RMB70bn, roughly flat YoY, with low-single-digit growth in 2026E/27E.

Government & Enterprise: Revenue more than doubled (+110% YoY) to RMB19.3bn, driven by strong demand for AI infrastructure (particularly servers, storage, and data communications equipment) from domestic cloud service providers. Segment GPM fell by 13.5ppt YoY to 8.3% in 1H mainly due to an unfavourable product shift towards lower-margin hardware sales. We expect the strong top-line growth momentum to continue, with est. YoY growth of 135% and 76% in 2025E and 2026E, respectively.

Consumer: Revenue increased 8% YoY to RMB17.2bn, lifted by over 30% growth in overseas handset shipments on operator partnerships and stronger traction of the Nubia and Red Magic gaming brands. Segment GPM declined by 1.2ppt YoY to 17.8% due to lower margins in certain home

terminal products. We project high single-digit revenue growth in 2025E and 11% YoY in 2026E. n Maintain BUY, with H-share TP of HK$42, based on 25x 2026E P/E (vs.

13.2x 2025E P/E prev.), largely in line with peers’ avg of 25.7x 2026E P/E.

A- share TP is RMB57, based on 34x 2026E P/E (vs. prior 15x 2024E P/E), 9% higher than its domestic peers’ average of 31.2x, given ZTE’s rapidly growing AI server revenue and strengths in networking capabilities, a key factor in AI server manufacturing. H-share’s valuation is ~70% of our A- share’s valuation, which we consider justified, as it is close to 34% A/H premium YTD 2025 as the company transforms into an AI infra. player. We raise our sales forecasts by 9%/7% for 2025/26E, to reflect larger-than- expected AI server order wins. We cut 2025/26E NPM by 1.2ppt/1.8ppt, to account for the heavier revenue mix toward integration-heavy AI servers,

which would dilute margins. We view ZTE as a key beneficiary riding the AI infrastructure tailwind. While near-term margin is likely to remain under pressure, ZTE’s strategic positioning in AI infrastructure should

support a potential rerating. Risks: 1) market share loss in AI servers, 2) greater-than-expected margin pressure, and 3) supply chain disruption due to geopolitical events.