The annual results for 2020 are in line with our expectations.
Lenovo Holdings announced full-year results for 2020: revenue rose 7.3% year-on-year to 417.6 billion yuan; net profit rose 7.2% year-on-year to 3.87 billion yuan, of which net profit rose 243% to 3.23 billion yuan in the second half of the year, mainly due to good performance returns from the company's financial investment. The annual results are in line with our expectations.
Development trend
The company's strategic investment remained sound under the epidemic. In 2020, the income of the strategic investment sector of the company increased steadily by 7% to 416.8 billion yuan compared with the same period last year, while the net profit decreased by 30% compared with the same period last year, mainly due to the severe impact of the epidemic on the investment portfolio of innovative consumption and services, and the impairment of car rental in China. 1) the epidemic has led to the demand for PC equipment in home work and online education. Lenovo Group has relied on its long-term supply chain advantages to ensure that smart devices have reached the world under the epidemic, and the net profit of IT has increased by 30% compared with the same period last year. 2) the agriculture and food sector lost 368 million yuan, mainly due to a sharp drop in export demand for fruits and seafood during the epidemic. 3) the net profit of the financial services business fell 9.7% to 1.87 billion yuan compared with the same period last year, mainly due to the recognition of one-time income from the listing of Lakala in 2019 and the company's strengthening risk management to reduce the scale of the business 4) the revenue of advanced manufacturing and professional services business increased by 4.8% compared with the same period last year, mainly due to the remarkable achievements of Lianhong Xinke and China Eastern Airlines logistics. 5) the income of the innovative consumer sector fell 18.3% to 740 million yuan compared with the same period last year, and the net loss reached 1.52 billion yuan, mainly due to the impairment of 1.01 billion yuan in car rental in China and the impact of the epidemic in the first half of 20 years on the development of education, health care and other services. The company accelerates cash flow by withdrawing non-core investments and further focuses on its core business. We believe that the company's investment portfolio will be more robust and resilient, and we expect Lenovo Holdings' strategic investment business to gradually recover from the impact of the epidemic this year.
Two-wheel drive under the financial investment business to achieve rapid growth. In 2020, the financial investment sector of the company contributed 2.44 billion yuan in net profit, an increase of 169% over the same period last year. 15 invested enterprises went public, and three funds contributed 4 billion yuan in cash return. Among them, Lenovo Star more than 50 projects for follow-up financing, 14 projects completed exit; Junlian Capital raised 4.5 billion yuan in the whole year, completed 51 new project investment, and withdrew 44 projects, promoting the improvement of group liquidity. We believe that the company's two-wheel drive strategy will effectively hedge against the negative impact of the rise and fall of the business. in the future, by focusing on the layout of technology and medical racing tracks, we will continue to strengthen the existing business and take advantage of shareholder advantages under the trend of digital transformation. occupy a unique value position, is expected to promote the realization of more scientific and technological achievements industrialization, achieve a good return on investment.
Profit forecast and valuation
Taking into account the weakening impact of the epidemic and the company's focus on core business, we raised revenue and net profit in 2021 by 5.1% and 5.1% to 429.9 billion yuan and 4.95 billion yuan, respectively. Introducing the 2022 profit forecast, we expect revenue to grow 2.4% to 440 billion yuan in 2022 compared with the same period last year. The company's current share price corresponds to a price-to-earnings ratio of 5.0 times forecast 2021. Maintain the neutral rating and the target price of HK $14.0 (based on segment summation), which is 13.6% higher than the current share price.
Risk
Uncertainty of IT and innovative consumer business; volatility of capital market.