3QFY22 revenue and profit exceed expectations; raise profit forecast
Lenovo Group Limited announced 3QFY22 results, with revenue up 17% and net profit up 62% year-on-year / month-on-month. Revenue and net profit were 7% and 20% higher than Bloomberg's consensus expectations, respectively, mainly due to: 1) growth driven by high-end PC (lightweight books, game books, workstations, etc.) and mobile phones, and sales of high-end IDG servers and software; 2) management and financial expense optimization (operating expense rate yoy:-1pct,qoq:-3pct). Taking into account the above factors, we raise our FY22/23/24 homing net profit forecast to $2.66 billion (original value: $2.81 billion). We maintain confidence in the development of the company's ISG and SSG business, and believe that the PC business will exceed industry growth. at the same time, we recommend tracking the performance of mobile phones and IoT, maintaining a "buy" rating, referring to comparable company Wind consistency expectations 21X 22e PE, taking into account PC market uncertainty and lack of core factors, give the company 11 times FY22 PE and maintain the target price of HK $13.89.
3QFY22 review: commercial / high-end PC is developing well, and IDG turnaround 3QFY22 SSG/ISG/IDG business revenue increased by 25% / 19% and 16% compared with the same period last year, continuing to hit a new high.
According to IDC, global PC shipments in 2021 are 345 million units (yoy:+13%) and ASP $817 (yoy:+6%). Lenovo commercial / high-end (games, light and thin, workstations, etc.) PC sales have driven ASP and gross margin gains, which together have driven IDG operating margins to a record 7.7 per cent (yoy:+0.3pct). Smartphone 3QFY22 has revenue of $2.217 billion (yoy:+46%). The ISG business has grown (yoy:+38%/7%) in both cloud and enterprise customers, making it profitable for the first time since the acquisition of the IBM server business. The company's financial leverage improved, net cash flow became positive, and quarterly high net profit margin of 3.2% was achieved under the increase in R & D expenses (yoy:+38%,qoq:+14%).
Future prospects: PC is relatively stable, mobile phones, ISG/SSG become future growth points reference IDC forecast, 4QFY22 global PC market scale yoy:-2%,qoq:-10%. We think Lenovo's PC business is expected to outpace industry growth, and 4QFY22 revenue is expected to be yoy:+1%,qoq:
-20%. Due to seasonality, we believe that ISG and SSG business revenue qoq:-12%/-15%. In the long run, ISG and SSG are expected to grow steadily, but it is recommended that we continue to pay attention to the expansion of Lenovo's mobile phone business in Asia and the fluctuations in the PC market. The company's expenses have been properly optimized, the net profit margin has doubled to the goal of 22-24, and the debt ratio and turnover days are also expected to improve.
Raise the forecast to maintain the target price to HK $13.89; maintain the "buy" rating we believe that IDG business will continue to expand into high-end products and mobile phones, SSG and ISG benefit from telecommuting and digital transformation demand is expected to maintain growth of more than 20%, while the company's control of fees is expected to increase. The net profit of homing in 22-23-24 was raised to US $2.68 billion to maintain the "buy" rating, but taking into account the uncertainty of PC market demand and the lack of core and other macro factors, we granted 11 times FY22 PE and maintained the target price to HK $13.89.
Risk hint: the uncertainty of PC business is strong and the risk brought by the change of global market economy environment.