Lenovo Group announced results for the 2024/2025 Q1 fiscal quarter. The Q1 company's revenue increased 20% year over year to 15.447 billion US dollars, and profit attributable to equity holders increased 38% to 0.243 billion US dollars. Gross margin was 16.6%, down 0.9 percentage points, mainly due to lower profit margins in the ISG business group, which grew rapidly this quarter; net profit to mother was $0.243 billion, up 38% year over year, and adjusted net profit was 0.315 billion US dollars, a sharp increase of 65% year over year.

Report summary

High-end PCs and smartphones drove double-digit growth in the smart device business in the Q1 fiscal quarter, the company's smart device business IDG's revenue increased 11% year over year, the high-end PC portfolio increased, and the smart device business group launched new artificial intelligence computer products using Arm architecture, which had a positive impact on average sales prices. Non-personal computer sales are supported by double-digit smartphone revenue growth. In addition to the Chinese market, the company's smartphone market share has increased by 2 percentage points since the second quarter of 2020, making it the sixth largest supplier in the world.

The infrastructure solutions business grew strongly, and the ISG sector achieved strong growth in Q1, up 65% year on year. Increasing popularity of artificial intelligence applications drove strong demand for general-purpose servers to pick up, and the increase in cooling demand for more powerful graphics processors drove the quarterly revenue for liquid cooling solutions to record high, up 55% year over year. The storage business's revenue reached a record high in the Q1 fiscal quarter, achieving double-digit annual growth for the 10th consecutive quarter; high-performance computing also recorded the highest revenue since its operation.

Solution Services Business Continued 13Q Year-Over-Year Growth Solution Services Business (SSG) Revenue recorded $1.9 billion, up 10% year over year, and recorded double-digit revenue growth for the 13th consecutive quarter. The operating margin reached 21%, ranking first among all business groups, accounting for one-third of the combined operating profit of the three business groups. Among them, various service businesses such as support services, operation and maintenance services, and equipment as a service all showed a good development trend.

Investment advice: The company's performance in the Q1 fiscal quarter was in line with market expectations. All business groups achieved good growth, the diversified advantages of the market were reflected, and the innovation ability and financial situation were stable. We expect net profit for the 2024/25 and 2025/26 fiscal years to be $1.24 billion and $1.47 billion, respectively (previously estimated at $1.2 billion and $1.45 billion). We gave the company a target price of HK$12.1 based on an estimated price-earnings ratio of 15.5x 2024/2025E, which is a 25.0% increase compared to the recent closing price, which is a “buy” rating.

Risks: Hardware product sales fall short of expectations; AIPC demand falls short of expectations; competition intensifies.