News Alert : Strategic partnership with PCCW to form a technology solutions provider in the Asia Pacific
- Lenovo Group (992 HK) announced its partnership with PCCW (8 HK) in the IT services business in the Asia Pacific
- The acquired business engages in the provision of digital solutions and managed services primarily, which is in line with its service-led transformation
- The valuation of the acquired business is expensive but justified as we expected synergy of the PCCW’s ITS business with Lenovo’s current devices and service business
- We expected short-term price support
What’s New
– Lenovo Group (992 HK) announced its partnership with PCCW (8 HK) in the IT services business yesterday after market close.
– Lenovo will hold 84% of the newly formed company named PCCW Lenovo Technology Solutions (PLTS) while PCCW holds the rest.
– PLTS will principally engage in the provision of digital solutions and managed services primarily serving customers across the Asia Pacific.
– The Transaction allows Lenovo to expand its IT services capabilities, its suite of service offerings as well as the geographic and vertical coverage of customers and partners.
– The net profit of the acquired business accounts for c.1% of Lenovo’s net profit in FY21/22.
– The total consideration will be US$614m, comprising US$514m (84%) in cash and US$100m (16%) in Lenovo new shares, accounting for 0.71% of the share outstanding after
– The valuation of the acquired business is c. 27x FY21 historical PE, compared with c. 6x PE of Lenovo.
Our View:
– We expected short-term price support as the partnership support Lenovo’s service-led transformation which is expected to be the future main growth driver of the company. The shares issued in the consideration at HK$9.025 per share also represent a premium of 19.2% compared with the close price as of yesterday.
– We expect the partnership will facilitate Lenovo’s service-led transformation through further tapping into the IT solutions industry by leveraging on the experience of PCCW.
– The valuation of the acquired business is expensive but justified as we expect the synergy of the PCCW’s ITS business with Lenovo’s current devices and service business will create a greater value for the company in long term.
– We maintain a BUY rating with TP at HK$8.9 as the partnership will support Lenovo’s service and solution business’s long-term growth.