Caitong reviews Lenovo's Q2 performance: AI PC acceleration penetration maintains a "hold" rating.

On November 20, LENOVO GROUP announced its performance for the second quarter of the 2025/26 fiscal year ending on September 30, 2025: revenue for the quarter increased by 15% year-on-year to 146.4 billion yuan, reaching a new high for the quarter. Adjusted net profit increased by 25% year-on-year to 3.66 billion yuan. Caitong released a commentary stating that Lenovo's performance for the quarter exceeded expectations, with AI PC penetration accelerating. Specific points include: IDG: AI PC penetration accelerating, Motorola smartphone sales reaching a historical high: revenue of 15.11 billion USD (exceeding Bloomberg's expectations by 3.7%), an increase of 11.8% year-on-year and 12.2% quarter-on-quarter, operating profit margin of 7.3% (exceeding Bloomberg's expectations by 0.07%), in line with last year, AI PC penetration increasing to 33%, and the company's smartphone business achieving a record high in new activations. ISG: Strong order backlog for AI infrastructure: revenue of 4.09 billion USD (3.9% below Bloomberg's expectations), an increase of 23.7% year-on-year and a decrease of 4.7% quarter-on-quarter, operating profit margin of -0.8% (exceeding Bloomberg's expectations by 0.54%), an increase of 0.3% year-on-year, with revenue from Neptune liquid cooling increasing by 154% year-on-year. SSG: Quarterly revenue reaching a new high, with 18 consecutive quarters of double-digit growth: revenue of 2.56 billion USD (exceeding Bloomberg's expectations by 3.2%), an increase of 18.1% year-on-year, with an operating profit margin of 22.3% (exceeding Bloomberg's expectations by 3.1%), an increase of 1.9% year-on-year. With the favorable factors in high-growth industries (including hybrid cloud, artificial intelligence, and digital workplace solutions), the long-term outlook is stable and positive. Investment recommendation: It is expected that the company will be affected by the storage cycle in the future, with adjusted net profit attributable to shareholders for FY25/26-FY27/28 increasing by 16.9%, 9.9%, and 13.3% to 1.68 billion, 1.85 billion, and 2.10 billion USD, respectively. The corresponding PE ratios for FY25/26-FY27/28 are 9.2X/8.4X/7.4X, maintaining a "buy" rating.