Event: Lenovo's CDR listing was accepted, which will boost investor confidence and maintain the buy rating. On September 30, Lenovo Group Limited CDR's listing application in Science and Technology Innovation Board was accepted, becoming the first red-chip CDR to return to A shares. The company intends to raise 10 billion yuan, the number of shares issued does not exceed 1.338 billion shares, and the corresponding share price is 7.47 yuan. We believe that 1) promote the strategy of transforming good companies into services; 2) it has taken nearly 9 months since the disclosure of the listing plan, and investors' different expectations of the timing and possibility of listing will boost investors' confidence. 3) the CDR pricing of the company is slightly higher than that of Hong Kong stocks, and the PE is 9x in 2022. The pricing is relatively reasonable and there is the possibility of over-offering. We maintain our earnings forecast and give FY22E-24E EPS0.13/0.15/0.18 US dollars, compared to the comparable company's average PE of 27.69 times in 2021, taking into account the time required for the 3s strategy to maintain the buy rating and target price of HK $14.53, corresponding to 15 times FY22 PE.
R & D investment: leading in absolute value, will further strengthen R & D
By the end of 1Q21, the company had a total of 10216 R & D personnel, accounting for 19% of the number of employees, forming a three-tier R & D system of group, research institute and venture capital. related R & D involves system miniaturization, energy efficiency and heat dissipation, human-computer interaction, new materials, software and other topics. The company's R & D investment in the past 18-20 years has reached 33.8 billion yuan, and the R & D cost has reached 27.6 billion yuan, exceeding the level of comparable companies. Among them, the investment ranked 11th in A shares in 2020, and Science and Technology Innovation Board ranked 1st. At the same time, the company's performance will also disclose that the investment has doubled in 21-23 years.
Gross profit margin: the gross profit margin of the three major businesses is stable, which is higher than that of comparable companies. The gross profit margin of personal computers and smart devices has shown a moderate growth trend over the past five years, reflecting the trend of the company's products to the high-end market. The gross profit margin of the mobile business fell in the latest fiscal year because the epidemic affected the Americas more severely. The data center business declined slightly as a whole, affected by fluctuations in industry demand and an increase in the company's share of sales of cloud computing products. The gross profit margins of FY21 computers and smart devices, mobile services and data center businesses are 16%, 18% and 13%, respectively, higher than comparable companies of servers and mobile phones.
Capacity arrangement and production and marketing rate: there is still room for improvement in capacity utilization, and the company currently has 13 self-owned factories in China, India, Mexico and other regions. FY21 personal computers and smart devices, mobile devices and data center equipment own capacity utilization of 78%, 82% and 97%, respectively, production and sales rates of 100%, 100% and 99%. The company's capacity utilization rate is at a relatively healthy level, while it still has the potential to improve; the production and marketing rate remains healthy. The income of the top five customers of the company in recent years accounts for no more than 22%, which is distributed all over the world, and the production and sales rate reflects the company's outstanding operational ability.
Investment and financing: promoting R & D in key industries
Raise funds for: research and development of new products and solutions, industrial strategic investment and supplementary liquidity. More than 60% of the new products and solutions will be funded for research and development, including 5G, vehicle networking, high-performance servers, IoT, machine vision and so on. We believe that the investment in the company's solution will be conducive to the upgrading of the company's product matrix, while replenishing liquidity will help the company reduce its debt ratio.
Risk hint: the uncertainty of PC business is strong and the risk brought by the change of global market economy environment.