CICC Supports Lenovo: Q2 Performance Exceeds Expectations, Maintains Target Price of HK$14.8

Recently, LENOVO GROUP announced its 2QFY26 performance: the company's revenue was $20.452 billion, a year-on-year increase of 14.6%; non-HKFRS net profit was $512 million, a year-on-year increase of 25.2%; net profit attributable to shareholders was $340 million, a year-on-year decrease of 5.1%, with non-cash fair value gains related to warrants at $148 million and nominal interest on convertible bonds at $28.47 million. In response to this, CICC released its opinion stating that the overall performance exceeded expectations, mainly due to: 1) all three major business groups and all regional markets achieving double-digit revenue growth, with AI-related revenue accounting for 30% of total revenue, an increase of 13 percentage points year-on-year; 2) improved operating profit margin. Looking at the development trends, AI PC is driving structural demand upgrades, actively responding to upstream core component price increases. In 2QFY26, the company's IDG revenue increased by 11.8% year-on-year to $15.107 billion, with an operating profit margin of 7.3%. According to IDC, global PC shipments in 3Q25 increased by 9.4% year-on-year, with Lenovo's growth rate outpacing the industry at 17.3%, expanding its leading advantage with a market share of 25.5%, mainly benefiting from the accelerated penetration of AI PCs and the efficiency advantages of a globalized supply chain layout. According to the company's official Weibo account, Lenovo has a market share of 31.1% in the global Windows AI PC market, solidifying its position as the global leader; AI PCs with five major AI features account for 30% of notebook shipments in mainland China. Looking ahead, with tight upstream storage supplies and price pressure, the company's flexible supply chain management, long-term cooperation with key component suppliers, and flexible price adjustment mechanisms provide strong risk absorption capabilities, allowing the company to maintain confidence in achieving double-digit year-on-year growth in PC revenue in the second half of 2026 fiscal year. AI infrastructure business showed strong growth, with operating profit losses narrowing further. In 2QFY26, ISG revenue increased by 23.7% year-on-year to $4.087 billion, with an operating profit margin of 0.78%, a 0.3 percentage point increase from the previous quarter and a 1.2 percentage point increase year-on-year, with a significant reduction in losses. Cloud infrastructure business revenue reached a historical high, AI server revenue achieved high double-digit growth, and order backlog remained strong; enterprise infrastructure business continued to transform its business model for large enterprise and SME customers. In terms of valuation, FY2026/27 earnings forecasts remain largely unchanged. Based on non-HKFRS net profit, the current stock price corresponds to a 9.3x/8.0x P/E ratio for the 2026/27 fiscal years. The recommendation to outperform the industry rating and a target price of $14.8 corresponds to a 14.1/12.2x FY2026/27 P/E ratio, representing 52% upside potential.