Damo: Target price for Lenovo Group (00992) “Overweight” rating raised to HK$46

The Zhitong Finance App learned that Morgan Stanley released a research report saying that Lenovo Group (00992)'s first-quarter results far exceeded expectations, ISG (Infrastructure Solutions Group) revenue nearly doubled year-on-year, and operating profit margin further expanded to 9.1%. Management confirmed that this is a structural profitability benchmark and is not a one-off phenomenon. The bank raised Lenovo's target price by 35%, from HK$34 to HK$46, and the rating was “increased”. The target price is equivalent to about 12.7 times the projected price-earnings ratio for the 2028 fiscal year, slightly higher than 12.1 times the three-year historical average +1 standard deviation. It is believed that Lenovo's continued achievement of the ISG target will support the re-evaluation of the valuation.

According to the Daimo Index, the market has major doubts about its “Street-high (Street-high)” ISG revenue and profit forecast, but the results provide strong evidence that OEM pricing capabilities are increasing in the current “chip inflation” environment. Lenovo's AI server order pipeline grew 157% quarterly to US$5.4 billion. Management expected the pipeline to be converted into revenue as soon as possible, but the supply of components was limited. The bank raised ISG's revenue forecast for the 2027 fiscal year by 28% to US$43.7 billion, 56% higher than market expectations, and expects ISG's operating margin to remain around 9%. For IDG, Damo predicts that revenue will remain stable and profit margins will remain around 7%. Management expected a double-digit year-on-year decline in PC market sales in the second half of the year, but Lenovo can outperform the market and is confident that profit margins will be resilient. Damo raised its earnings per share forecast for the 2027, 2028 and 2029 fiscal years by 114%, 42% and 28%, respectively.