Incident: The company disclosed its 2023 semi-annual report. In the first half of the year, it achieved revenue of 2012.286 billion yuan (YoY -15%) and net profit of 668 million yuan (YoY -69%), mainly due to: 1) Industrial operation sector. Under the influence of the industrial operation sector, PC market demand continued to shrink, channel depot pressure increased, and corporate sales pressure, Lenovo Group contributed -19% of revenue to 177.407 billion yuan in the first half of the year, contributing -67% to 650 million yuan; 2) Industrial incubation and investment sectors, driving a decline in the number of listed companies and fluctuations in investment income Under the influence, the net loss of Gimu increased to 405 million yuan (same period last year: slight loss of 03 billion yuan).
Industrial operation: The performance of Lenovo and Lianhong is under pressure, and Luxembourg and Jiawo are growing steadily. The industrial operation segment of 2023H1 achieved revenue of 19.279 billion yuan (YoY -15%) and net profit of 1,733 million yuan (YoY -39%). Judging from the performance of the four core companies in this sector: 1) Lenovo Group contributed -67% of net profit to 650 million yuan over the same period, and the share of non-PC business revenue increased to 42%. 2) Lianhong Group contributed -30% to total net profit to 183 million yuan over the same period, and is speeding up the construction of new projects. 3) The International Bank of Luxembourg contributed +62% of net profit to 661 million yuan over the same period, and its performance bucked the trend. 4) Jiawo Group contributed +29% of net profit to 239 million yuan over the same period, and the competitiveness of its products continued to improve.
Industrial incubation and investment: Losses still need to be reversed, and the trend of strategic emerging industries remains unchanged. The industrial incubation and investment sector of 2023H1 Company achieved revenue of 2,011 billion yuan (YoY +5%) and net loss of 405 million yuan, mainly affected by capital market fluctuations and a decline in the number of newly listed companies. Among them, 1) Junlian Capital has a new capital of 3.8 billion yuan, AUM of nearly 80 billion yuan, and a total of 106 listed companies. 2) Lenovo Star AUM exceeds 4.5 billion yuan, has more than 10 investment projects, and 6 invested companies have been selected into the fifth batch of national specialized and new “little giants” list.
Debt indicators have improved, and cash flow has been good. The company's balance ratio as of 2023H1 was 84.2%, compared to the end of the previous year - 0.8 pct; total debt accounted for 55% of total capital, compared to -1 pct at the end of the previous year; cash returned nearly 3.5 billion yuan through dividends, investment withdrawal, etc.
Investment advice: Maintain a buy-A investment rating. The company's performance in the first half of the year was under pressure, mainly due to the decline in performance of Lenovo Group due to cyclical factors in the PC industry. The company owns high-quality venture capital institutions such as Lenovo Star and Junlian Capital. It is optimistic that the company will take advantage of the full registration system to exit the listing of hard technology companies such as AI. We expect the company's EPS from 2023 to 2025 to be $0.87, $1.53, and $1.62 respectively. The six-month target price is HK$8.92, corresponding to 9.5 times the 2023 P/E (converted exchange rate).
Risk Alerts: Capital Market Fluctuations/Macroeconomic Changes/Investors' listing progress falls short of expectations, etc.