Lenovo Group (992 HK) Summary
Core Content
This report from BOCOM Int'l Research provides an analysis of Lenovo Group's financial performance and stock rating as of 25 May 2018. The report outlines the company's recent earnings, business segments, financial metrics, and stock performance, leading to an updated stock rating and target price.
Main Points
4QFY18 Performance
- Revenue: Increased by 11% YoY to US$10.6 billion, exceeding the Street estimate of US$9.8 billion.
- Pre-tax profit: Remained depressed at US$37 million but showed YoY growth.
- PCSD (PC/Tablets): Delivered solid margins, with improved product mix and rising ASP contributing to margin strength.
- DCG (Data Center): Demonstrated strong growth, up 44% YoY, driven by North America and EMEA, with hyper-scale, HPC, and software segments performing well.
- Mobile Business (MBG): Continued to underperform, with plans to reduce complexity and exit unprofitable emerging markets to improve profitability.
Earnings Outlook
- The earnings outlook is stabilizing due to improving DCG prospects.
- The smartphone business is still considered a drag on performance.
- The stock has underperformed the market YTD, down 11% versus HSI up 3%.
Stock Rating Update
- Rating: Upgraded from Sell to Neutral.
- Target Price: HK$4.10 (up from HK$3.70), based on 13x FY19E P/E.
- P/E Ratio: Now at 12.8x FY19E, aligning with peers like HPQ and Asus.
Key Financial Information
Revenue (US$ million)
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| Revenue |
44,912 |
43,035 |
45,350 |
48,751 |
50,910 |
| YoY Growth |
-3% |
-4% |
5% |
7% |
4% |
Net Profit (US$ million)
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| Net Profit |
(128) |
535 |
(189) |
456 |
582 |
| YoY Growth |
-79% |
21% |
-266% |
-149% |
49% |
EPS (US$ cents)
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| EPS |
-1.2 |
4.9 |
-1.7 |
3.9 |
5.0 |
P/E Ratio
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| P/E |
NA |
10.3 |
NA |
12.8 |
10.1 |
P/B Ratio
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| P/B |
1.9 |
2.3 |
2.3 |
2.5 |
2.6 |
Dividend Yield
| Year |
2016 |
2017 |
2018 |
2019E |
2020E |
| Dividend Yield |
6.8% |
6.9% |
6.8% |
7.0% |
7.5% |
Stock Performance
| Metric |
Value (HK$) |
| 52-week high |
5.21 |
| 52-week low |
3.53 |
| Market Cap |
46,977.84 |
| Avg Daily Vol |
44.20 |
| YTD Change |
-11.34% |
| 200-day MA |
4.29 |
Analyst Notes
- Stock Rating: Neutral
- Target Price: HK$4.10 (up from HK$3.70)
- Reason for Upgrade: Improved DCG performance and stabilized earnings, despite continued weakness in the mobile segment.
Financial Highlights
- PCSD: Strong margins and revenue growth, with a PTI margin of 4.5% in 4QFY18.
- MBG: Still weak, with a PTI margin of -7.0% in 4QFY18.
- DCG: Sustained growth, with PTI margin of -2.7% in 4QFY18.
- Others: Mixed performance, with PTI margin of 4.5% in 4QFY18.
Financial Ratios
| Ratio |
2016 |
2017 |
2018 |
2019E |
2020E |
| P/E |
NA |
10.3 |
NA |
12.8 |
10.1 |
| P/B |
1.9 |
2.3 |
2.3 |
2.5 |
2.6 |
| P/S |
0.1 |
0.1 |
0.1 |
0.1 |
0.1 |
| EV/EBITDA |
6.7 |
4.8 |
8.7 |
5.8 |
4.8 |
| Net Debt/Equity |
0.4 |
0.0 |
0.5 |
0.5 |
0.4 |
| ROE |
-3.6% |
20.1% |
-7.8% |
19.0% |
25.4% |
| ROA |
-0.5% |
2.1% |
-0.7% |
1.6% |
2.0% |
| ROIC |
3.3% |
4.2% |
-6.6% |
3.1% |
4.8% |
Analyst Certification
- The views in the report reflect the personal views of the authors.
- No compensation was directly or indirectly related to the recommendations.
- No insider information was used in the report.
Disclosure of Business Relationships
- BOCOM International has investment banking relationships with various companies.
- Some subsidiaries hold more than 1% equity in listed companies.
Disclaimer
- The report is confidential and for private circulation only.
- BOCOM International Securities Ltd does not guarantee the accuracy or completeness of the information.
- The report is not a recommendation to buy or sell securities and should not be relied upon for investment decisions.
