Chinese phone maker ZTE Corp, which is marketing an initial public offering of up to $398 million, said on Sunday overseas sales would triple to 40 percent of total sales by 2006. China's number-two telecoms gear maker, which exports to more than 60 countries including India, Pakistan, Russia and Egypt, said overseas sales climbed to 13.4 percent of its total sales in the first-half of 2004, from 11.4 percent in 2002.
"We have been exploring the overseas markets for eight years. In the near term we are focusing on emerging markets, which are very similar to China's telecoms market landscape five or 10 years ago," Hou Weigui, chairman of ZTE, told a video conference from New York, where the company is marketing its share offering.
The firm, which plans to use 60 percent of the IPO proceeds for overseas expansion, said higher gross profit margins overseas were offset by bigger distribution costs - giving a net margin about the same as its domestic business.
ZTE, which make base stations and networking equipment, is offering 141 million shares, or 15 percent of its enlarged share capital, at HK$17.5-$22.0 or 12.2 to 15.4 times the firm's 2005 earnings. The indicated range is at a 15-33 percent discount to ZTE's A-share price in China.
Using Hong Kong accounting standards, ZTE's net profit margin increased to 7.1 percent in the first half of 2004 from 6 percent in 2003.
Revenues rose 45 percent to 10.2 billion yuan in the first half from a year earlier.
The eagerness of ZTE, which also makes base stations and network equipment, to grow its overseas market may also be prompted by a murky domestic market.
The firm has invested more than 1 billion yuan ($120 million) on third-generation (3G) mobile technology in the past 7 years but still doesn't know when Beijing will issue 3G licences.
China Telecom and China Netcom, which plan to invest in 3G networks, have already lowered their spending on Personal handyphone system (PHS), a low-end wireless service know locally as "little smart" that accounted for 45.6 percent of ZTE's revenues in the first-half of 2004.
"Even if 3G has a negative impact on our PHS business, we are fully prepared ... Our growth drivers for the coming one or two years are overseas business and handsets business," said company President Yin Yimin.
Pricing of ZTE's IPO is expected on December 3, with trading in the stock to begin on Hong Kong's main board on December 9 under the stock code "0763". Goldman Sachs is the IPO's sole bookrunner.