* Shares fall as much as 5 pct before returning to positive
* ZTE forecasts return to profit in Q1 2013
* Analysts expect China 4G development to help outlook
(Adds comment, updates stock price)
HONG KONG, Jan 21 The Hong Kong-listed shares of
ZTE Corp fell 5 percent early on Monday after China's
second-largest telecom equipment maker issued a profit warning
for 2012, but the stock quickly erased losses as investors bet
on a strong outlook for 2013.
The stock fell as low as HK$14.02, its lowest since Jan. 8,
before erasing losses to rise as much as 0.9 percent to
HK$14.90, outperforming a flat benchmark Hang Seng Index
"Of course the market reacted negatively this morning," said
Leping Huang, analyst from Nomura Equity Research. "Investors
had expected some loss but not so big."
"Our main focus is the capex outlook for China's 4G in
2013," Huang said, adding that any weakness in the stock price
may be a buying opportunity.
ZTE warned on Sunday of a net loss of up to 2.9
billion yuan ($467 million) for 2012 due to project delays and
the non-renewal of contracts.
It said it expected to return to profitability in the first
quarter of 2013 due in part to its sale of Shenzhen ZTE NetView
Technology Co., Ltd., which generated investment income of up to
880 million yuan.
Some analysts had a more prudent view.
"We remain sceptical. We indicated that we would turn more
bearish on ZTE on continued margin erosion," Macquarie Equities
Research wrote in a research note. "We would prefer to wait for
solid evidence of execution."
UBS said the recent share price rally was driven more by
sentiment than fundamentals. "We suggest investors stay cautious
at current levels before further clarity on the industry
environment emerges," it added.
Credit Suisse maintained its "Outperform" rating on ZTE due
to strength from China 4G TD-LTE network builds, resumption of
African equipment contracts, and better smartphone
profitability, as well as a strategy to focus on profitability,
giving up lower-margin smartphone orders in the domestic market.
On Monday, cross-town rival Huawei Technologies Co Ltd
, the world's No.2 telecom equipment maker and sixth
largest mobile phone vendor, posted a 33 percent rise in net
profit for 2012, reversing a fall in 2011 thanks to new telecom
projects and smartphone sales.
(Reporting by Donny Kwok; Editing by Anne Marie Roantree and