Introduction to this report:
The company's FY24Q3 performance was in line with expectations, IDG returned to a growth trajectory, and the main business recovered steadily and profits continued to improve.
Summary:
The “Overweight” rating was maintained, and the target price was added at HK$11.48. The company's third-quarter results were in line with expectations, IDG returned to growth, and the main business continued to recover and profits improved steadily. Taking into account the progress of PC switching, changes in server demand, and AI PC shipment progress, the net profit for FY24-26 was adjusted to US$10.2/12.1/1.62 billion (previous value was US$9.6/14.3/US$1.82 billion), PE13X/11X/8X, and the FY24-25E PE 15X was given, adding a target price of HK$11.48, maintaining the “increase” rating.
The revenue growth rate was corrected, and profitability continued to be optimized. The company's FY24Q3 achieved revenue of 15.721 billion US dollars, +3% year-on-year, and revenue recovery was positive, mainly due to IDG returning to the growth channel and increasing the share of non-PC revenue to 42%; gross profit margin of 16.5%, -0.6 pct year over year; net profit of 377 million US dollars, net profit ratio 2.4%, +0.4 pct month-on-month. Net interest rate rebounded for three consecutive quarters. The steady recovery of the main business and improved operating efficiency drove the group's profit recovery.
IDG is returning to growth, and AI PCs are about to be launched. The smart device business (IDG) FY24Q3 achieved revenue of $12.362 billion, +7% year-on-year, and better than market expectations. Thanks to PC shipments growing much higher than the market growth rate and smartphones and tablets returning to large double-digit growth; achieving operating profit of US$911 million and operating profit margin of 7%, +1% YoY. IDC judged that the market contraction had bottomed out and the growth prospects were promising. Canalys predicted that the launch of AI PCs is expected to revive the market and change the user experience. Lenovo's PC market share is close to 24% again this quarter Consolidating its leading position in the world, the official delivery of the 2024H1 AI PC will also lead a new cycle of switching in the market.
SSG's performance continues to reach new highs, and ISG's decline narrows, and the demand for AI computing power is clear. Solution Services (SSG) FY24Q3 achieved revenue of US$2,021 billion, +10% YoY, operating profit of US$412 million, YoY +1%, operating profit margin 20%, same operating margin. SSG's revenue and profit reached a new high in the current quarter, and the share of operation and maintenance services and project and solution services increased to 55%; Infrastructure Solutions (ISG) achieved revenue of US$2.473 billion, year-on-year, operating profit of -US$38 million, operating margin of -1.5%, revenue decline and narrowing of operating losses, storage, software and services Total revenue reached 7.4 billion yuan. ISG is expected to fully explode as GPU supply eases and DDR5 platform migration progresses, superimposing iterations such as the Sora big model.
Risk warning: Global IT spending is tightening; PC inventory removal is slow; AI PC shipments fall short of expectations.