Performance review
1H23 revenue fell 15% year-on-year to 201.3 billion yuan
The company announced 1H23 results: revenue was 201.3 billion yuan, down 15% from the same period last year; net profit from home was 668 million yuan, down 69% from the same period last year, mainly due to cyclical weak demand in the PC market in the first half of 2023, resulting in pressure on Lenovo Group Limited's main business sales.
Trend of development
Affected by the prosperity of the industry, the industrial operation plate is under short-term pressure. 1H23, the revenue of the industrial operation sector was 199.3 billion yuan, down 15% from the same period last year. Sub-subject point of view: 1) Lenovo Group Limited: revenue fell 19% to 177.4 billion yuan compared with the same period last year, mainly due to the 26% decline in smart equipment business income under the drag of the industry de-inventory cycle. 2) Jiawo Group: revenue increased by 39% compared with the same period last year, mainly due to the recovery of the fruit consumer market, and the company made use of the channel advantage to make efforts in key items, driving a substantial increase in revenue. 3) International Bank of Luxembourg: compared with similar European banks, revenue increased by 47% year-on-year, and after-tax net profit increased by 50%, mainly due to business resilience and cost reduction. We expect that the company's industrial operation sector revenue is expected to achieve steady low-unit growth in 2023.
Due to the market disturbance, the industry incubation and the loss of the investment plate expanded. The annual income of the 1H23 industrial incubation and investment sector rose 5 per cent to 2.01 billion yuan compared with the same period last year, while the net loss of the sector expanded to 400 million yuan compared with the same period last year, mainly due to fluctuations in the capital market and a decline in the number of newly promoted listed companies. As of June 30, 2023, Junlian Capital, a private equity arm of the company, had promoted a total of 106 listed companies; during the reporting period, it had completed a total of 12 new project investments and completely or partially withdrew 41 projects.
1H23, the company continues to increase R & D investment, R & D expenditure reached 7.1 billion yuan, R & D expenditure rate increased to 3.5%, and funds within the company system invested intensively in chips, new energy, new materials, AI and other national strategic industries, with a total investment of nearly 50 science and technology enterprises in the first half of the year. Facing the future, Lenovo Holdings, Junlian Capital, Lenovo Star and other main bodies participated in nearly 40 AI enterprises, including Fuhanwei and Cambrian, laying out the underlying technological breakthroughs.
Profit forecast and valuation
Keep revenue and profit forecasts unchanged. Maintain the outperform industry rating; lower the target price by 17% to HK $10 (based on segment summation; increase the holding company discount rate from 74% to 78%, taking into account the downside of market risk appetite). The target price corresponds to 3.8 times / 3.1 times 2023 prime 2024 forecast price-to-earnings ratio, which has 39% upside compared to the current share price. The company's current share price corresponds to a price-to-earnings ratio of 2.7x / 2.2 times 2023 / 2024.
Risk
Uncertainty of IT and innovative consumer business; volatility of capital market.