CCB International: As a core beneficiary of the AI PC wave and AI infrastructure investment, the target price of Lenovo Group (00992) was raised to HK$15

The Zhitong Finance App learned that on February 21, CCB International released a research report stating that as the core beneficiary of the AI PC wave and AI infrastructure investment, it maintained the “outperforming market” rating of Lenovo Group (00992), and the target price was raised from HK$12.5 to HK$15. In view of Lenovo's improved sales prospects (Windows 11 and AI PC momentum driving higher average sales prices and higher shipments), the revenue forecast for the 2025/26/27 fiscal year was raised by 1%/3%/1%.

CCB International indicated that the Lenovo Group once again exceeded expectations in the third quarter of fiscal year 2025. Revenue for the December quarter increased 20% yoy/5% month-on-month to US$18.8 billion, which is 8%/5% higher than CCB International's forecast/Bloomberg consensus forecast. The gross profit margin was 15.7%, down 0.8 percentage points from the previous year (up 0.1 percentage points from the previous month). Profit before tax increased 10% year over year to $517 million, and net profit increased 106% year over year to US$693 million, up 93% month on month; both indicators were higher than CCB International and the market's expectations. The surge in net profit was mainly due to a one-time income tax credit of RMB 2.82 billion. Excluding this tax benefit, quarterly net profit increased 22%/15% year over month, respectively. Thanks to increased investment in cloud services and the recovery of the server business, Infrastructure Solutions Business Group (ISG) achieved 59% year-on-year revenue growth, and operating margins corrected after six consecutive quarters of losses.

The PC business outperformed the market, and the smartphone business took off. According to IDC data, Lenovo maintains a leading position in the global traditional PC market. Shipments reached 16.9 million units in the fourth quarter of 2024 (corresponding to Lenovo's third quarter of fiscal year 2025), an increase of 4.8% over the previous year, and a market share of 24.5%. The overall PC market recovered slowly, with shipments increasing by only 1.8% year-on-year during the quarter. Benefiting from the increase in the share of high-end and gaming PCs, Lenovo ASP achieved a year-on-year increase of about 4.9% and 1.7% month-on-month. Considering the transition to Windows 11 and the new AI PC models launched in 2024, CCB International expects the recovery of the PC market to accelerate in the 2025 fiscal year.

In terms of mobile business, smartphone revenue grew strongly by 21% year-on-year during the quarter, and shipments surged in Asia Pacific (+155% YoY) and EMEA (+28% YoY). The tablet business achieved a steady year-on-year growth of 5%. In view of the positive outlook for PCs and the increase in smartphone market share, CCB International expects Smart Device Business Group (IDG) sales to increase 12% year-on-year in the 2025 fiscal year (10% decrease in FY2024) and 8% in the 2026 fiscal year.

AI PCs have advantages, and Lenovo's AI PC products continue to lead the market. The company expects AI PCs to account for about 80% of its total PC shipments by fiscal year 2027, and Lenovo AI PCs equipped with Intel Meteor Lake (some use Qualcomm chips) are well received. Currently, Lenovo holds 30% of the global AI PC market. In the Chinese market, Lenovo's AI PC is equipped with the self-developed AI model “Xiaotian”, which fully demonstrates its software and hardware synergy advantages.