The 23/24FYQ3 revenue growth rate turned positive year-on-year, with a 9% month-on-month increase, and the net profit margin further improved month-on-month. In the Q3 fiscal quarter, Lenovo Group's revenue was US$15.7 billion, up 3%/9% year over year. Intelligent Business Group (IDG) /Infrastructure Solution Business Group (ISG) /Solution Services Business Group (SSG) each achieved revenue of US$124/25.2 billion, 7%/-13%/+10%, and +7%/+24%/+5% month-on-month. The company's operating profit margin for the Q3 fiscal quarter recorded 3.9%, up 0.3 pct from month to month, mainly affected by the narrowing of ISG's operating loss ratio.
Net profit due to Q3 fiscal quarter was US$340 million, down 23% year on year, and the decline narrowed sharply. The net profit margin increased 35% from month to month, and the net profit margin to mother was 2.1%, which was another improvement of 0.4 pct month over month, mainly due to the company actively controlling expenses, such as saving $10/16 million yoy/month on month in financial expenses. However, the company will continue to invest in R&D. It is expected that R&D investment will account for a record in revenue throughout the fiscal year, laying the technical foundation for the company's long-term development.
IDG: The year-on-year growth rate is positive, and profitability is close to the historical peak. The Q4 fiscal quarter is expected to be under pressure. In the Q3 fiscal quarter, IDG's revenue was $12.4 billion, and the year-on-year growth rate was positive, YoY 6.7%. We estimate that PC/non-PC accounts for 74%/26% of IDG Group in the Q3 fiscal quarter, accounting for 58%/21% of total revenue, respectively. The company's share of global PC shipments further increased by 0.5 pct to 24%, and the year-on-year growth rate of smartphone and tablet shipments exceeded the market by more than 20 pcts. High-end products have driven the IDG Business Group's operating profit margin to 7.4%, almost surpassing the historical high of 21/22Q3. Looking ahead to the 23/24Q4 fiscal quarter, we expect IDG revenue for the 23/24Q4 fiscal quarter to temporarily be affected by the time required for B-side user product testing after AI PC products are launched. In the second half of the 24/25 fiscal year, after the company launched more AI PC products for the world, it is expected to see an explosion in demand. The company expects ASP to increase slightly and lead the industry in profit margins as AI PCs are equipped with richer configurations.
ISG: Revenue grew sequentially for two consecutive quarters, and it will take time to reverse losses. Although demand for training servers exploded, it was limited by a shortage of AI graphics cards. Combined with the development of general-purpose servers, ISG's revenue fell to a low point in the 23/24Q1 fiscal quarter. Revenue for the Q2-3 fiscal quarter improved for two consecutive quarters, and Q3 revenue recorded 2.5 billion US dollars. We expect a slight year-on-year increase in the Q4 fiscal quarter. In addition to servers, the company's total revenue for storage, software, and services reached a record $1 billion in the Q3 fiscal quarter, ranking third in global storage and AI infrastructure. In terms of profit, ISG OP Margin recorded losses for 3 consecutive quarters and recorded -1.5% in the Q3 fiscal quarter, mainly due to reduced operating leverage and increased R&D investment. We expect that as Nvidia's GPU supply gradually becomes sufficient and more GPUs are adopted, the company ISG hopes to achieve good results in 24/25FY H2, and OP Margin is expected to reverse losses.
SSG: Steady growth in revenue and a slight increase in profit margins. The company's SSG revenue for the Q3 fiscal quarter increased 10% year over year to 2 billion US dollars, reaching a record high. Operating profit margin increased 0.2/0.4 pct yoy to 20.4%, far surpassing other business groups, and its position as a new profit engine is becoming more and more prominent. 1) Support services: Increased penetration rates and record service orders for PremierSupport and Premier Support Plus, and revenue increased 7% year over year. 2) Operation and maintenance services: Revenue increased 26% year over year, mainly due to strong demand for device-as-a-service and IaaS solutions.
The company won the largest TruScale infrastructure as a service order so far in the Q3 fiscal quarter and the largest asset recovery service order in Q3, and operation and maintenance service revenue is expected to continue to grow. 3) Project and Solution Services: Revenue increased 5% year over year, mainly due to steady demand for integrated solutions in the vertical sector. In the Q3 fiscal quarter, the turnover of operation and maintenance services, project and solution services businesses accounted for 55% of SSG, increasing year-on-year for 11 consecutive quarters.
Investment advice: Considering AI PC deployment and ISG's business will take time to reverse losses, we have lowered our profit forecast.
We expect the company's revenue of 23/24FY, 24/25FY, and 25/26FY to be $560/597/65 billion, or -9.6%/+8.8% YoY; net profit to mother of $9.1/12.1/1.55 billion, or -43.2%/+32.1%/+28.8% YoY. Considering valuation factors such as the company's position in the industry, future growth, and improved profitability, we believe that the company's reasonable market value is HK$122.6 billion (HK$9.88 per share, based on the closing exchange rate on February 23), corresponding 13 times the P/E for fiscal year 23/24, maintaining a “buy” rating.
Risk warning: Global macroeconomic growth falls short of expectations; global PC market recovery falls short of expectations; server industry growth falls short of expectations; the increase in the company's server market share falls short of expectations; upstream raw material supply risks; new business development falls short of expectations; risk of exchange rate fluctuations; risk of uncertainty in calculation assumptions.