Key Takeaways
Lenovo Group’s fourth-quarter net profit soared 479% to $521 million, as a turnaround in its server business and strong PC sales prompted CICC to raise its price target.
"Considering that the ISG business turnaround is driving a valuation re-rating, the broker lifted its TP by 35% to HKD20 and maintained an Outperform rating," CICC said in a research note.
For the quarter ended in March, revenue climbed 27% year-over-year to $21.59 billion, while non-HKFRS net profit jumped 101% to $559 million, beating consensus estimates. The results were driven by a surge in PC revenue and a significant improvement in profitability for the company's Infrastructure Solutions Group (ISG).
The company’s stock surged over 17% on the news, reflecting investor optimism about its high-margin AI server business. CICC raised its non-HKFRS net profit forecasts for fiscal years 2027 and 2028 by 34.5% and 42.8%, respectively.
Not all analysts were as bullish. Morgan Stanley maintained its Equal-weight rating and HKD14.2 price target, noting that the 20% share price increase on the results day suggests positive factors are largely priced in. The bank remains cautious about potential pressure on sales volume and margin headwinds from cost inflation.
Lenovo, which holds a 24% global market share in PCs, has seen its commercial-related sales grow to 60% of its PC revenue since acquiring IBM’s ThinkPad business, according to Morningstar. The company's Infrastructure Solutions Group, which includes servers and storage, is seen as a key future earnings driver.
The strong quarterly performance, particularly the growth in AI server back-log orders, signals a potential re-rating for the hardware manufacturer. Investors will watch for sustained margin improvement in the ISG division in the upcoming fiscal 2027 first-quarter results.
This article is for informational purposes only and does not constitute investment advice.
