Citi has released a research report lowering its price target for Lenovo Group (00992) by 20%, from HK$50 to HK$40, reflecting the potential dilution impact from convertible bonds and warrants, as well as updates to its valuation model, while maintaining its Buy rating.
Citi expects Lenovo Group to once again deliver solid performance in the second quarter of fiscal year 2026/2027 (ending September), driven by continued strong growth in the Infrastructure Solutions Group (ISG), steady execution in the Intelligent Devices Group (IDG), and ongoing double-digit expansion in the Solutions and Services Group (SSG).
Although recent market concerns about highly leveraged AI infrastructure operators have triggered volatility across the AI supply chain, Citi believes Lenovo Group's direct exposure to high-risk Neocloud customers is limited. The company's robust risk management measures and comprehensive accounts receivable insurance effectively alleviate market concerns about its balance sheet.
The bank expects the company's second-quarter revenue for fiscal year 2026/2027 to reach US$27.1 billion (up 33% year-on-year and 1% quarter-on-quarter, broadly in line with market consensus), with adjusted net profit of US$1.18 billion (beating market consensus by 49%). This reflects continued strong revenue momentum in the ISG business and sustained margin improvement (with gross margin 1 percentage point above market consensus). ISG is expected to remain the primary earnings driver, with second-quarter revenue up 135% year-on-year and operating margin holding at 9%.
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