Citi has issued a research report stating that, after accounting for potential share dilution from convertible bonds and warrants and updating its valuation model, it has lowered its price target on Lenovo Group (992.HK) by 20% to HK$40 while maintaining a "Buy" rating.
Citi expects that Lenovo Group (992.HK) may once again deliver excellent results for the fiscal second quarter ended in September, driven jointly by strong growth in the group's Infrastructure Solutions Group (ISG) business, solid execution in the Intelligent Devices Group (IDG), and continued double-digit expansion in the Solutions and Services Group (SSG).
On specific figures, Citi forecasts that Lenovo Group (992.HK) revenue for the fiscal second quarter will rise 33% year on year to US$27.1 billion, in line with market consensus, while adjusted net profit is projected to reach US$1.18 billion, far exceeding market forecasts by 49%.
Among the businesses, ISG's performance is particularly notable, with revenue expected to surge 135% year on year, an operating margin maintained at 9%, and a gross margin one percentage point higher than market expectations.
Citi noted that although the market has recently worried about risks associated with highly leveraged AI operators, Lenovo Group (992.HK) has very limited direct exposure to high-risk "new cloud" customers, and its sound risk controls and accounts receivable insurance are sufficient to dispel market concerns about its balance sheet.
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