Morgan Stanley: Assigns LENOVO GROUP (00992) a "Buy" rating, with a target price raised to HKD 46.

Morgan Stanley released a research report stating that LENOVO GROUP (00992) significantly exceed expectations in its first fiscal quarter, with ISG (Infrastructure Solutions Group) revenue nearly doubling year-on-year, and operating profit margin further expanded to 9.1%. Management confirmed this as a structural profitability benchmark, not a one-time phenomenon. The bank raised the target price for Lenovo by 35%, from HKD 34 to HKD 46, maintaining an "Overweight" rating. The target price corresponds to a forecasted price-to-earnings ratio of approximately 12.7 times for the fiscal year 2028, slightly above the three-year historical average plus one standard deviation of 12.1 times, believing that Lenovos continued achievement of ISG targets will support a valuation reassessment. Morgan Stanley pointed out that the market has significant doubts about its "Street-high" ISG revenue and profit forecasts, but the performance provides strong evidence showing that OEM pricing power has strengthened in the current "chip inflation" environment. Lenovos AI server order pipeline grew 157% quarter-on-quarter to USD 5.4 billion, with management expecting to convert the pipeline into revenue as soon as possible, though constrained by component supply. The bank raised its forecast for ISG revenue in fiscal year 2027 by 28% to USD 43.7 billion, which is 56% higher than market expectations, and anticipates an ISG operating profit margin of around 9%. For IDG, Morgan Stanley forecasts revenue to remain stable, with a profit margin of around 7%. Management expects that PC market sales will decline by double digits year-on-year in the second half, but Lenovo can outperform the market and is confident in margin resilience. Morgan Stanley has raised its earnings per share forecasts for fiscal years 2027, 2028, and 2029 by 114%, 42%, and 28%, respectively.