20131107-巴黎银行证券-Strong_result,_solid_OPM_uptrend_13页_724kb

Lenovo 2QFY14 Performance Summary

Core Content

Lenovo reported strong results for the September quarter of FY14, with sales reaching USD9.8 billion, up 11% quarter-over-quarter (q-q) and 13% year-over-year (y-y). Earnings also increased significantly to USD220 million, up 26% q-q and 36% y-y. The operating profit margin (OPM) reached 2.9%, surpassing the consensus estimates of 2.5% and 2.7%.

Main Points

• Sales and Profit Growth:

  • Sales increased by 11% q-q and 13% y-y.
  • Profit increased by 26% q-q and 36% y-y.
  • OPM improved to 2.9%, indicating better cost control and economies of scale.

• Market Share and Demand:

  • Lenovo continues to gain market share in global PC markets.
  • Improved demand from commercial and Chinese markets has led to a more positive outlook on the global PC industry.
  • Lenovo has a significant exposure to enterprise PC, which typically constitutes around 50% of its PC shipments, enabling it to outperform peers in this segment.

• MIDH Business Growth:

  • The MIDH (Mobile Internet Devices and Home) business saw a 23% q-q increase in sales.
  • Sales contribution from MIDH reached 15.1% in the September quarter.
  • The company is the second largest Chinese smartphone brand and has strong potential for overseas expansion.
  • Tablet sales reached 2.3 million units in the quarter, showing promising momentum.

• Earnings Projections:

  • The firm raised its FY14 and FY15 earnings projections by 11.0% and 1.9%, respectively.
  • The new target price (TP) is HKD9.90, up from HKD9.20.

• Investment Thesis:

  • Lenovo is positioned to benefit from the growing mobile device market, especially in the post-PC era.
  • The company's OPM is improving consistently year-over-year, suggesting better operational efficiency.
  • The investment recommendation remains a BUY, with a target price of HKD9.90.

Key Information

• Target Price: HKD9.90 (up from HKD9.20)
• EPS Growth:
  • FY14E: 11.0%
  • FY15E: 1.9%
• Recurring EPS:
  • FY14E: USD0.08
  • FY15E: USD0.08
• Dividend Yield:
  • FY14E: 3.3%
  • FY15E: 4.2%
• EV/EBITDA:
  • FY14E: 7.6x
  • FY15E: 7.3x
• Price/Book:
  • FY14E: 3.7x
  • FY15E: 3.3x
• Net Debt/Equity:
  • FY14E: -97.3%
  • FY15E: -47.3%
• ROE:
  • FY14E: 27.6%
  • FY15E: 25.5%

Market Performance

• Share Price Performance:
  • 1 Month: 5.1%
  • 3 Months: 17.7%
  • 12 Months: 27.2%
• Market Cap: USD11,457 million
• 3m Avg Daily Turnover: USD34.8 million
• Free Float: 57%
• Major Shareholder: Legend Holdings Ltd (26%)

Key Risks

• Weaker-than-expected demand for both PC and MIDH business
• Operating margin pressures

Company Background

• Lenovo is one of the largest PC vendors globally and leads in China, Russia, Japan, and Germany.
• It has been focused on the PC + mobile era.
• It is the second-largest smartphone brand in China and has introduced several tablets, smart TVs, and other mobile devices.

Key Executives

• Yuanqing Yang: Chairman & CEO
• Wai-Ming Wong: CFO
• Peter D. Hortensius: Senior VP

Key Assumptions

Metric	FY13 (%)	FY14E (%)	FY15E (%)
Gross Margin	12.0	12.9	12.3
Operating Margin	2.4	2.5	2.6
Pre-tax Margin	2.4	2.6	2.6
Net Margin	1.9	2.1	2.1

Earnings Sensitivity

Metric	FY14 (USD m)	FY15 (USD m)	Change (%)
Sales	38.4	39.7	+11.0%
Change (%)	-	-	+1.9%
NB Shipment Growth (%)	8.9	4.5	-
GM (%)	12.9	12.3	-
EPS (USD cents)	7.73	8.10	+11.0%

Peer Valuation Comparison

Name	P/E (13E)	P/E (14E)	P/BV (13E)	P/BV (14E)	Yield (13E)	Yield (14E)	ROE (13E)	ROE (14E)	EPS Growth (13E-14E)
HON HAI	10.5	8.7	1.1	1.0	5.3	6.0	27.6	25.5	4.8
QUANTA	14.4	13.7	2.0	1.9	5.9	5.4	27.6	25.5	4.8
COMPAL ELEC.	10.3	9.1	0.8	0.7	5.3	6.4	27.6	25.5	4.8
WISTRON	9.2	8.2	0.9	0.9	5.4	5.6	27.6	25.5	4.8
PEGATRON	11.1	13.5	1.0	1.0	5.2	4.3	27.6	25.5	4.8
INVENTEC	11.0	9.0	1.6	1.5	8.5	7.4	27.6	25.5	4.8
LENOVO	14.4	13.7	3.7	3.3	3.3	4.2	27.6	25.5	4.8

Conclusion

Lenovo is showing strong performance in both its PC and MIDH segments, with improved OPM and solid market share gains. The investment thesis remains positive, with a BUY rating and a revised target price of HKD9.90. The company is well-positioned to benefit from the growing mobile device market and has a good chance of expanding its smartphone and tablet business.