Incident: On May 23, Lenovo Group released its 2024 annual report. FY2024 achieved revenue of US$56.864 billion, YoY -8%; net profit of US$1,011 million, YoY -37%. The results surpassed previous market expectations.
FY4Q24's profit increased year over year, and the share of non-PC businesses reached a record high. FY4Q24 achieved revenue of US$13.833 billion, YoY +9%, continuing the year-on-year growth trend that began in the previous quarter; achieved net profit of US$248 million and YoY +118%, ending five consecutive quarters of decline and starting positive growth for the first time.
The company's net profit margin in a single quarter reached 1.83%, YOY+0.99pct, and profitability recovered significantly. The company's non-PC business accounted for 44.7%, YOY+1.5pct, a record high, and the strategic transformation effect was remarkable.
ISG: FY4Q24 revenue is booming, and we are optimistic about AI server growth in the new fiscal year. FY2024 achieved revenue of **** billion US dollars, YoY -9%; FY4Q24 achieved revenue of 2.5 billion US dollars, YoY +15%, a record high in a single quarter; among them, the company's storage, service and software revenue increased 48% year over year, making it the third largest storage service provider. Furthermore, Lenovo is ranked number one in the world in the global HPC market share ranking of the top 500. The ISG business lost US$240 million in operating profit for the full fiscal year, mainly due to increased AI server R&D expenses (FY2024 Group's share of R&D personnel and R&D expenses were 26.3% and 3.6%, respectively, all record highs), restrictions on card acquisition, and a slowdown in traditional server iteration, which dragged down the company's performance. With the liberalization of the supply of computing power cards, the company's product matrix continues to be enriched. 9 new NVDIA AI products have been released, and FY4Q24 has an AI pipeline of more than 7 billion US dollars. Looking forward to the future, the business is expected to further break through major core customers and reverse losses within the new fiscal year.
IDG: PC sales lead the industry, and AI PCs can be expected in the future. FY2024 achieved revenue of 44.6 billion US dollars, YoY -10%, and the product structure upgrade brought the operating profit margin to 7.4%, close to the historical peak; FY4Q24 achieved revenue of 10.5 billion US dollars, YoY +7%, and operating profit of 773 million US dollars, YoY +17%. In terms of PC business, according to IDC data, global PC sales increased 1.5% year on year in 1Q24. Driven by strong commercial PCs, Lenovo's PC sales increased 8% year on year, significantly superior to the industry, with a market share of 23%, continuing to rank first in the industry. Shipments of the FY4Q24 smartphone increased 23% year over year, mainly due to strong sales of the foldable Razr, which reached a record high in the high-end product portfolio. Looking ahead to 2024, Microsoft launched a major AI upgrade with CoPilot+P****novo's new AI PC product with five major characteristics has also been put on sale. It is equipped with the personal intelligence “Xiaotian”, which can effectively improve office and life efficiency; the company expects the total PC market to return to higher than before working from home. We believe that AI PCs may usher in the accelerated implementation of commercial orders in the second half of the year. With its leading AI PC layout, the company is expected to continue to lead the industry's growth.
Investment advice: FY4Q24 Lenovo Group's ISG, IDG, and SSG business segments have shown strong recovery and growth momentum. Looking ahead to FY2025, we expect Lenovo's various businesses to shift from recovery to rapid growth, and the upward trend is clear from quarter to quarter. We expect FY25/FY26/FY27 to achieve net profit of 12.15/15.47/19.03 billion US dollars, corresponding to the current stock price PE 14/11/9 times, respectively. As a leader in the PC and server industry, the company has strong global competitiveness. We are optimistic that full-stack AI will drive the company's long-term growth and maintain a “recommended” rating.
Risk warning: AI PC penetration is slow, PC sales fall short of expectations, server demand falls short of expectations.