Introduction to this report:
Strong market demand for AI devices, infrastructure, and services is expected to benefit from AI PC demand to release investment points:
Profit forecast and investment suggestions: Based on the continued steady recovery of the global PC market, the company's various new product launches, and strong demand in the AI equipment, infrastructure and service markets, we are optimistic about Lenovo's long-term growth potential and adjusted the company's FY2025E/FY2026E operating income to 61.9/63.6 billion US dollars (previous value was 62.2/65.2 billion US dollars), and the net profit for FY2025E/FY2026E was 1.23/1.62 billion US dollars, respectively (previous (The value is $1.47/1.85 billion). We gave Lenovo Group FY2025 Forward P/E 16X, corresponding to a target market value of 18.45 billion US dollars, adjusted the target price to HK$12.4, and maintained the “gain” rating.
Results continued to recover, and 1QFY25 revenue and profit exceeded expectations. 25Q1 revenue was $15.4 billion, +20% YoY; 25Q1 net profit to mother was $0.243 billion, +38% YoY. Revenue and profit exceeded expectations mainly because revenue from infrastructure solutions and smart equipment business exceeded expectations; 25Q1 gross profit margin was 16.6%, -0.9 pct year on year, and operating expenses were 2.07 billion US dollars, +11% year over year.
IDG's revenue grew by double digits, ISG's revenue reached a record high, and SSG continued its growth momentum.
IDG's smart device business revenue was $11.4 billion, +11% year over year, and operating profit was $0.83 billion, +27% year over year. Commercial sales picked up, while the share of high-end PCs rose to 31.6%, driving improvements in revenue and profit margins. According to Canalys latest statistics, Lenovo AIPC shipments increased 228% month-on-month. Tablets increased more than 30% year over year, and smart revenue increased 28% year over year. ISG infrastructure program revenue exceeded 3 billion US dollars, a sharp increase of 65% over the previous year, and operating losses of 37.27 million US dollars, a loss of 23 million US dollars compared to the same period last year. Revenue growth is mainly driven by AI infrastructure construction. Among them, high-performance computing revenue increased 30% year over year, Poseidon liquid cooling server revenue increased by more than 50% year over year, AI GPU reserves increased by more than 20% month-on-month, and orders increased by more than 50% month-on-month. SSG Solution Service business revenue was 1.9 billion US dollars, +10% year over year, continuing double digit growth. Operating profit was 0.4 billion US dollars, +10% year over year, mainly benefiting from the digital transformation of enterprises.
The gradual release of AI PC demand is leading the switching cycle. According to Canalys, global shipments will reach 44 million units in 2024 and 0.103 billion units in 2025. The company will launch more AI PC products at IFA and the Innovation and Technology Conference later in 2024, leading the global switching cycle.
Risk Warning: Global IT Spending Tightens; PCs Are Slowing to Depot; AI PC Shipments Fail to Meet Expectations