Key points of investment
Incident: Lenovo Group announced results for the fourth quarter and full year of fiscal year 2024. FY2024 Q4 achieved revenue of US$13.8 billion, net profit of US$248 million, +118% YoY; FY2024 achieved revenue of US$56.9 billion, -8% YoY, and net profit of US$1 billion, or -37% YoY. The company's performance exceeded the agreed market expectations.
IDG: The non-PC business drives performance growth, and AI PC is expected to be a growth booster 1) The IDG business (intelligent equipment business) achieved revenue of 10.5 billion US dollars, +7% year over year, and operating profit of 800 million US dollars, +17% year over year; the FY2024 fiscal year achieved revenue of 44.6 billion US dollars, -10% year over year, and operating profit of 3.2 billion US dollars, or -12% year over year.
2) The non-PC business performed well, with revenue reaching 6.2 billion US dollars, accounting for a record high of 45% of revenue. Among them, mobile phone shipments and revenue both achieved double-digit year-on-year growth, far higher than the market growth rate.
3) The PC business is leading the market in growth. The company ranked first in the market share in 4 global markets and reached a new high share in the North American market. The overall market share reached 22.9%, maintaining the leading level of the industry.
4) The company expects AI PCs to move from high-end to mainstream in the next 3 years, and the first batch of AI PCs has now been delivered. We believe that the company took the lead in deploying AI PCs and has joined hands with Microsoft and Qualcomm to launch CoPilot+PC. It is expected that the next few quarters will continue to benefit from the increase in AI PC penetration with the launch of new AI PC products.
ISG: Revenue grew for three consecutive quarters, with new product launches+operational optimization driving profit recovery1) ISG's business (infrastructure business) achieved revenue of 2.5 billion US dollars, +15% year over year, and operating profit of -97 million US dollars, turning losses year on year; in fiscal year FY2024, the company achieved revenue of 8.9 billion US dollars, operating profit of 200 million US dollars, and year-on-year loss.
2) The company's continued investment is expected to reverse losses. In the future, several Nvidia and AMD supporting AI servers will be launched, and at the same time, it will continue to promote cost and operational efficiency optimization. We expect that with the high speed of AI servers and the company's early investment, the business is expected to recover steadily.
Profit forecast and investment rating: Considering that the company is expected to be the first to benefit from AI PC penetration and improve ISG performance through AI server products, we raised the company's FY2025/2026 expected net profit from US$12.2/1.72 billion to US$12.4/1.73 billion, and forecast the company's net profit to mother of US$1.99 billion in 2027. The PE corresponding to the latest closing price is 14.2/10.2/8.8 times, maintaining the “buy rating”.
Risk warning: PC market demand recovery falls short of expectations, global AI implementation falls short of expected risk, industry competition intensifies