Moody's confirms the Baa2 issuer and senior unsecured rating of Lenovo Group (00992.HK), with a stable outlook.

Moody's states that Lenovo's Baa2 issuer rating reflects the company's long operating history and natural and acquisitive business growth, leading position as a PC supplier, and diversified geographic footprint in generating revenue and operating. However, the company's low profitability, limited by competition and investments related to internal production capabilities, restricts its ratings.

Moody's predicts that Lenovo's revenue will recover to $60 billion to $62 billion in the next 12 to 18 months and that the adjusted EBITDA margin will remain stable at around 6% and 5.8% for the 2024 financial year. The forecast reflects the expansion of Lenovo's scale economy and the increased contribution of higher-margin solutions and services businesses. Moody's expects the company's leverage to increase to 1.6 to 1.8 times in the 2025 fiscal year and to fall to 1.2 to 1.4 times in the 2026 fiscal year.

Moody's also noted that Lenovo has very good cash flow, with bank deposits of CNY 3.6 billion as of the end of March and expected operating cash flows for the next 12 months. The company's cash is sufficient to pay short-term debt of CNY 50 million, capital expenditures, and dividends.