* Shares decline as much as 17 pct
* FBI, EU investigations damping sentiment
* Biggest risk is lack of transparency - Springs Capital
(Adds comments from analysts, ZTE shareholders)
HONG KONG, July 16 Shares of ZTE Corp (0763.HK),
the world's fifth-biggest telecommunications equipment maker,
fell to their lowest in more than three years in Hong Kong as a
profit warning and a probe by the U.S. government cast a gloom
over the company's near-term fortunes.
Chinese telecoms equipment manufacturers including Huawei
Technologies Co Ltd [HWT.UL] have been hit by sluggish global
spending on networking gear, with ZTE saying last week that
first-half profit could slide as much as 80 percent.
The earnings warning came as a report emerged that the FBI
has opened a criminal investigation into ZTE over the sale of
banned U.S. computer equipment to Iran and its alleged attempts
to cover it up and thwart a Department of Commerce probe.
"The FBI probe would adversely affect ZTE’s ability in
bidding for overseas projects, and it’s a major negative,” said
Lou Zhen, a fund manager at Shanghai Anode Industrial Investment
Co, which doesn’t own ZTE shares. “Investors have reason to be
concerned about the company’s growth prospects and there’s still
room for the stock to fall."
ZTE, which counts China Life Insurance Co (601628.SS) and
BlackRock Asset Management among its shareholders, could face
steep fines and restrictions on its U.S. operations if it is
found to have illegally sold U.S. computer products to Iran.
An investigation by the European Union Commission on whether
Huawei and ZTE have accepted illegal subsidies from the Chinese
government has also pressured ZTE's shares in the past month.
"The biggest risk in investing the stock is that it’s
non-transparent. It’s related to the nature of the business and
coupled with the fact that the management is not really that
willing to talk to the investors," said Jenny Tian, a managing
partner at Hong Kong-based hedge fund Springs Capital.
ZTE's stock slumped 17.4 percent to as low as HK$10.32 on
Monday, the weakest intraday level since March 4, 2009, with
trading volume more than doubling that of its 30-day average.
Stiff competition in the mobile phone business in China, the
world's biggest market by subscribers, has cut ZTE's gross
profit margin by 2.03 percentage points to 30.26 percent last
year, according to its annual report.
A fall in the euro and many emerging currencies due to the
European debt crisis has also caused ZTE to take a foreign
exchange loss in the first half, compared to a gain a year
earlier, the company said last week.
"We're quite negative on the stock, mainly because they are
unable to lift their gross margins as they've been focusing on
gaining market share at low prices. Some of their contracts are
money-losing after factoring the costs of their operations in
certain markets," said a Hong Kong-based analyst at a fund
management company that invests in ZTE shares.
ZTE's shares have more than halved in value since the
beginning of the year.
(Reporting by Lee Chyen Yee, with additional reporting by
Samuel Shen and Nishant Kumar; Editing by Ryan Woo)
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