Incident: The company announced its results for the first quarter of FY2025. In Q1 of FY2025, the company achieved revenue of 15.447 billion US dollars, an increase of 19.74% year-on-year and an increase of 11.67% month-on-month; net profit to mother of 0.243 billion US dollars, an increase of 38.25% year-on-year and a decrease of 2.02% month-on-month.

FQ1's performance grew rapidly year on year, and demand from commercial PCs and enterprise customers continued to pick up: Thanks to the accelerated growth of computing, infrastructure and services, the company's revenue and profit all achieved rapid year-on-year growth in FY2025. By business, smart device business (IDG) revenue was 11.422 billion US dollars, up 11% year on year, mainly due to a recovery in commercial sales and a shift in demand to high value-added products; infrastructure solutions business (ISG) revenue of 3.16 billion dollars, up 65% year over year, mainly due to cloud customer demand exceeding expectations, compounded by continued recovery in enterprise customer demand; solution service business (SSG) revenue of 1.885 billion US dollars, up 10% year on year, mainly driven by strong demand for as-a-service and AI-driven solutions . In FY2025, the company's gross margin was 16.6%, -0.9 pct year on year. The main reason was ISG's low profit margin; the net margin was 1.6%, +0.2 pct year on year. The impact of the decline in gross margin on net profit margin was offset by the decline in marketing management and research expenses. In terms of expenses, the company's sales, management, and R&D expenses in Q1 FY2025 were 5.41%/4.21%/3.08%, respectively, with year-on-year changes of -0.79/-0.42/-0.41pct, respectively.

The AI PC leadership position is stable, and the infrastructure solution business performance is outstanding: benefiting from a new round of commercial switching cycles, compounding the topical effects of AI PCs, the momentum for global PC market recovery continues to strengthen. In FY2025 Q1, the company's core PC business had a global market share of nearly 23%, an operating profit margin of 8.8%, and high-end products accounting for 31.6%. The company said that after being the first in the industry to define and launch AI PCs with five major characteristics, the company consolidated its leading position in the AI PC market; according to Canalys's latest statistics, Lenovo's AI PC shipments increased by 228% month-on-month. The smart device business other than personal computers also achieved high growth: tablet revenue increased by more than 30% year over year, smartphone business revenue increased 28% year over year, and performed particularly well in the Asia Pacific and Europe-Middle East-Africa regions, with revenue increases of 245% and 59%, respectively. In terms of infrastructure solutions business, driven by strong growth in the cloud infrastructure business, ISG Infrastructure Business Group's revenue grew rapidly year on year; among them, revenue from storage, software and service businesses increased nearly 60% year on year, and revenue from Poseidon liquid cooling servers, which have unique advantages in terms of energy consumption, increased by more than 50% year on year. In terms of solution service business, revenue from operation and maintenance services increased 16% year over year, and the total contract value of equipment as a service and infrastructure as a service solutions increased by nearly 40%; thanks to the company's AI-driven solutions, including smart factory IoT and smart warehousing solutions, project and solution service revenue increased 18% year over year.

The global PC market is picking up further, and the AI wave is expected to drive high performance: Preliminary results from the International Data Corporation (IDC) Global Quarterly Personal Computing Device Tracker showed that after seven consecutive quarters of decline, the global traditional PC market once again achieved positive growth in the second quarter of 2024, with total shipments reaching 64.9 million units, an increase of 3% over the previous year. The company pointed out that the promotion of hybrid artificial intelligence will drive the growth of the global PC market and achieve long-term recovery beyond pre-pandemic levels; AI PC is a major inflection point in the personal computer industry, which is expected to drive switching demand in the commercial sector; and the popularity of hybrid artificial intelligence is expected to drive the company IDG to achieve growth above the market level, and drive the improvement of ASP and profitability. Furthermore, in the face of the opportunities brought by hybrid artificial intelligence, the company is using AI to optimize existing solutions: for the domestic market, Lenovo upgraded DynaSky 3.0 and built the DynaSky intelligent engine based on the Lenovo Smart Hybrid Cloud; facing the future, the company actively cooperated with other AI industry leaders such as Nvidia and Microsoft, and established close partnerships with more than 50 leading AI companies in the Lenovo Innovator Program.

Raise profit forecasts and maintain the “gain” rating: In the smart device business, the company continues to focus on investment innovation and the development of excellent products and new solutions, promoting the company's development in the PC and non-personal computer fields, and consolidating the company's leading position in the PC industry; in terms of infrastructure solutions, the company's infrastructure business continues to improve, benefiting from the adjustment and demand of the entire industry to support investment in AI. Considering the continued increase in AI PC penetration rate and the improvement in the company's ISG profitability, the profit forecast for the 2025 and 2026 fiscal years was raised. The company's net profit for the 2025-2027 fiscal year is expected to be 1.244 billion US dollars, 1.594 billion US dollars, and 1.857 billion US dollars, EPS is 0.10 US dollars, 0.13 US dollars, and 0.15 US dollars, PE is 12X, 9X, and 8X, respectively.

Risk warning: The recovery of global IT capital expenditure falls short of expectations, market demand falls short of expectations, market competition increases risks, and the risk of exchange rate fluctuations.