Revenue for the first fiscal quarter was 15.4 billion US dollars, up 20% from the same period, and net profit to mother also increased 8% to 0.243 billion US dollars. Excluding the effects of factors such as changes in the fair value of financial assets and asset impairment losses totaling nearly 57 million US dollars, net profit due to non-Hong Kong accounting standards also increased 65% to 0.315 billion US dollars. Operating cash flow also increased 22% to $0.791 billion.

The non-PC business accounted for 47% of revenue, a record high.

IDG high-end increased unit prices and differentiated layout technology: high-end PC revenue increased by 21%, the share of commercial PCs increased to nearly 70%, and the average PC price increased. IDG's operating margin reached 7.3%, up nearly 1 pct. The Lenovo AI PC is equipped with the personal intelligence “Lenovo Xiaotian”, and the Trusted Artificial Intelligence Controller enhances data and privacy security.

The company is developing technologies to improve inference speed, model compression, and memory usage, and has deployed AI Core chips, Yoga Creator Zone, and ThinkShield security solutions. Third-parties expect nearly 27% of PCs to be AI-enabled by the year. Lenovo will further invest in the non-PC segment of accessories and office collaboration solutions.

ISG's revenue reached a record high, and losses continued to narrow: the infrastructure solutions business group's revenue increased 65% year over year to 3.16 billion US dollars, and quarterly revenue exceeded 3 billion US dollars for the first time, mainly benefiting from the launch of AI infrastructure products and the increase in GPU supply; operating losses were 0.037 billion US dollars, narrowing by 0.023 billion US dollars year on year. The company has unique Neptune warm water liquid cooling technology, and the liquid cooling solution's quarterly revenue reached a record high, up 55% year over year. Storage business revenue reached a record quarterly high, achieving double-digit year-on-year growth for the 10th consecutive quarter, and high performance computing revenue also reached a record high.

SSG maintained growth and high profitability: The Solution Services Group's revenue was $1.9 billion, rising for 13 consecutive quarters, mainly benefiting from strong demand for services and AI-driven solutions. Operating profit also increased 10% to $0.396 billion, and operating margin reached 21%. The recent increase in hardware sales is expected to drive the growth rate of the support services business in the second half of the fiscal year.

Partnering with the Middle East Fund to accelerate global expansion: According to IDC estimates, the Middle East and Africa IT and business services market will reach 38 billion US dollars by 27 years. The company plans to issue US$2 billion zero-interest convertible bonds to Alat Fund with an initial exchange price of HK$10.42 per share. Once the resolution is passed at the shareholders' meeting on September 12, it is expected that in addition to saving financial costs, it is expected to improve the diversification of production layout and make full use of the growth potential of related industries in the region.

We forecast earnings per share of $0.10, 0.13, and $0.16 for the fiscal year 24/25-26/27 (the original forecast was $0.11/0.14/0.17, mainly reducing pre-tax profit margins). According to the comparable company's 24-year PE valuation of 16.86 times, the corresponding target price was HK$13.13 (the exchange rate was 1:7.7972), maintaining the purchase rating.

Risk warning

The recovery in PC industry sentiment fell short of expectations, industry competition intensified, and AI PCs fell short of expectations.