Profit forecast and investment advice: Increase FY2025E-FY2027E revenue to US$622/652/67.3 billion (previous value of FY25E-FY26E was 600/65.6 billion), and corresponding increase in net profit attributable to mother was US$14.7/18.5/2.0 billion (previous value of FY25E-FY26E was US$1,21/1.62 billion), respectively. Based on FY2025PE 16X, the target price of Hong Kong stocks (992.HK) was raised to HK$14.1 to maintain the “gain” rating.
Full recovery of growth and breaking out of the trough. Lenovo Group's FY2024 Q4 revenue +9% YoY to US$13.8 billion (expected to be RMB 13.1 billion); gross margin +0.6 pct YoY to 17.6% (expected 16.7%); and net profit attributable to ordinary shareholders +118% YoY to $250 million (expected to be $160 million). Diversification showed results. Businesses other than PCs accounted for a record high of 45% in revenue, an increase of 1.5 pct over the previous year. The main business fully resumed growth, with IDG/SSG/ISG revenue +6.8%/+10.3%/15.1%, OPM 7.4%/-3.8%, respectively, and +0.6pct/+1.7pct/-4.2pct year-on-year respectively.
IDG continues to expand its leading position, SSG profits are strong, and ISG has plenty of potential orders. 1) IDG:
The global PC market share is 23%, and the growth rate is about 6pct higher than the market, consolidating its leading position. The total PC market is expected to return to higher than pre-pandemic levels; smartphone shipments are +23% YoY, driving revenue +14% YoY, with revenue growth rates of +88%/+40% for the Asia Pacific/EMEA market, respectively.
2) SSG: The revenue share of operation and maintenance services and project and solution services increased by 5 pct to 55% year over year, driving operating margin up 1.7 pct to 21.4% year over year. Key general solutions maintained strong growth, and the total value of digital office/hybrid cloud service contracts was +33%/+82%, respectively.
3) ISG: Storage revenue was +70%, ranking third in the world. AI servers account for about 29% of servers, and have received $7 billion in potential customer orders. With GPU supply easing, DDR5 transition smoothly, and R&D investment restraint, it is expected that losses will be reversed in FY2025Q4.
Industry recovery resonates with AI PC technology leadership. Global PC shipments recorded a 1.5% year-on-year increase in 2024 Q1 for the first time after two consecutive years of decline, according to IDC data. The technology-driven innovation of AI PCs resonates with the industry's recovery cycle. Lenovo released two CoPilot+PCs equipped with Qualcomm NPU processing speeds of 45 TOPS (the highest in the industry), and Microsoft enabled offline LLM functionality.
It is estimated that approximately 10% of the world's PCs will be upgraded to AI PCs in 2024, and Lenovo will continue to benefit.
Risk warning; global IT spending is tightening; PC inventory removal is slow; AI PC shipments fall short of expectations.