Citigroup: Lowering Lenovo Group's (00992) target price by 20% to HK$40 to maintain “buy” rating

The Zhitong Finance App learned that Citi released a research report stating that it lowered the target price of Lenovo Group (00992) by 20% from HK$50 to HK$40, reflecting the possible share dilution effects of convertible bonds and warrants, as well as an update to the valuation model to maintain a “buy” rating.

Citi expects that Lenovo Group will once again deliver steady performance in the second quarter of the 2026/2027 fiscal year (up to the end of September), thanks to the continued strong growth of the Infrastructure Solutions Business Group (ISG), the steady execution of the Smart Device Business Group (IDG), and the continued double-digit expansion of the Solution Services Business Group (SSG).

Although recent market concerns about highly leveraged AI infrastructure operators have caused fluctuations in the AI supply chain, the bank believes that Lenovo Group's direct exposure to high-risk “Neocloud” (Neocloud) customers is limited. The company's prudent risk management and control measures and comprehensive accounts receivable insurance have effectively mitigated market concerns about its balance sheet.

The bank expects the company's revenue for the second fiscal quarter of fiscal year 2026/2027 to be US$27.1 billion (up 33% year-on-year and 1% quarterly, which is basically in line with market consensus), and adjusted net profit of US$1.18 billion (exceeding market consensus by 49%). This shows that ISG's business revenue momentum is still strong and profit margins continue to improve (gross margin is 1 percentage point higher than market consensus). ISG is expected to remain the main driver of earnings, with second-quarter revenue up 135% year over year and operating margin remaining at 9%.