Lyon: LENOVO GROUP (00992) quarterly performance exceeds expectations, target price raised to 21 Hong Kong dollars, ISG is the new growth driver.

Lyon released a research report stating that LENOVO GROUP (00992) had a strong performance in the fourth quarter ending at the end of March, mainly benefiting from the improvement in operating profit margin of the Infrastructure Solutions Group (ISG) and the stability of the Personal Computer business. The company aims to achieve a total revenue of 100 billion US dollars within two years, striving for continuous expansion of profit margin. Lyon raised its target price for the company from 12.9 Hong Kong dollars to 21 Hong Kong dollars, reiterating its outperform rating. Lyon raised its non-HKFRS net profit forecast for the group for the fiscal years 2027 and 2028 by 33% and 25%, mainly due to the increase in ISG profit margin expectations. The report pointed out that Lenovo's revenue in the fourth quarter of last year increased by 27% year-on-year to 21.6 billion US dollars, and non-HKFRS net profit soared by 101% year-on-year to 559 million US dollars. During the period, ISG revenue increased by 37% year-on-year to 5.6 billion US dollars, and the operating profit margin hit a record high of 3.6%, becoming the major performance surprise. The Intelligent Devices Group (IDG) revenue grew by 24% year-on-year to 14.6 billion US dollars, with an operating profit margin of 6.9%. The group expects the ISG revenue to continue expanding, and the long-term profitability is expected to catch up with industry leaders. Management expressed confidence in component supply and expected IDG to maintain industry-leading profitability with a strong supply chain, operational efficiency, and global localization of factories. Lenovo revealed that its AI server business channel has expanded to 21 billion US dollars, and has started shipping Nvidia GB300 NVL72 servers, aiming to deliver the Nvidia Rubin server platform in the second half of this year.