Soochow: Maintains "buy" rating on LENOVO GROUP (00992) with improved profitability in ISG.

Soochow released a research report stating that LENOVO GROUP (00992) is benefiting from the AI wave in various business areas, with AIDC, AIPC, personal and enterprise intelligent systems driving steady growth in performance. The bank has raised the company's expected net profit for FY2027-2028 from $2.09/2.33 billion to $2.28/2.68 billion and expects the company to achieve a net profit of $3.17 billion for FY2029. The closing price on May 26, 2026 corresponds to a PE ratio of 13/11/9 for FY2027-2029, maintaining a "buy" rating. Key points from Soochow: Events: The company released its FY2026 Q4 and full-year results, achieving revenue of $21.59 billion in Q4, a year-on-year increase of 27%, marking the highest fourth quarter revenue in the company's history; net profit attributable to shareholders was $520 million, a year-on-year increase of 479%; adjusted net profit was $560 million, a year-on-year increase of 101%. The high increase in net profit was mainly driven by the low base in FY2025 Q4, improvement in expense ratio, and release of operating profit. The company achieved annual revenue of $83.08 billion, a year-on-year increase of 20%, and adjusted net profit attributable to shareholders of $2.05 billion, a year-on-year increase of 42%. In Q4, AI-related revenue increased by 84% year-on-year, accounting for 38% of the group's revenue; annual AI-related revenue increased by 105% year-on-year, with the proportion increasing to 33%, marking the accelerated realization of AI revenue. IDG: PC market outperforms the industry, AIPC supports market share and profit margin through high-end products In Q4, IDG revenue was $14.6 billion, a year-on-year increase of 24%; PC and smart device revenue increased by 26% year-on-year, with an operating profit margin of 6.9%. In FY2026 Q4, PC shipments' year-on-year growth outperformed the market by nearly 6 percentage points, with a global market share of 24.4%, maintaining the top position. In FY2026 Q4, premium PC shipments accounted for 50% and increased by 29% year-on-year. AIPC, high-end PCs, and gaming PCs collectively support ASP and profit margin resilience. In FY2026 Q4, Motorola smartphones achieved record-high shipments, with revenue seeing double-digit growth. ISG: Increased sales of AI servers lead to profit improvement, forming core expectations In Q4, ISG revenue was $5.6 billion, a year-on-year increase of 37%, reaching a quarterly historical high; operating profit was $200 million, the highest since the establishment of this business, with an operating profit margin of approximately 3.6%. For the whole year, ISG revenue reached $19.2 billion, a year-on-year increase of 32%, and ISG achieved an operating profit of $7 million for the whole year. By the end of FY2026, the AI server pipeline reached $21 billion, with over 5800 customer AI deployments and an annual server manufacturing capacity exceeding 70,000 racks, with over 11,000 direct liquid-cooled racks, entering the profit realization phase. The sustainability of profitability is a key tracking point going forward. SSG: Steady growth in high-profit service business continues to support the quality of the group's profits In Q4, SSG revenue was $2.6 billion, a year-on-year increase of 19%, achieving double-digit growth for five consecutive years, with an operating profit margin exceeding 20%. SSG's high-profit margin and recurring revenue attributes continue to uphold the quality of the group's profits. Risk Warning: Component shortages and cost increases, fluctuation in AI server profit margins, AIPC, and enterprise AI demand falling short of expectations.