3QFY24: Solid Results; Recovery In FY25 Could Be Slower Than Expected
Lenovo’s 3QFY24 results are solid, with a slight beat across all segments on both revenue and profitability. Growth in FY25 may turn out to be moderate as enterprise clients are delaying purchases in 1H while awaiting more meaningful AI PC launches. Nevertheless, the AI PC-driven replacement cycle should kick in by 2H24, and the rate of penetration of AI PC in 2025-26 may surprise on the upside which can potentially bolster earnings growth during the period. Maintain BUY and cut target price to HK$10.50.
RESULTS
• 3QFY24 revenue a slight beat; solid operating margins across all segments. Revenue across all three segments – Intelligent Device Group (IDG) (+6.7% yoy and +7.4% qoq to US$12.4b), Infrastructure Device Group (ISG) (-13.4% yoy and +23.6% qoq to US$2.5b) and Solutions and Service Group (SSG) (+10.0% yoy and +5.3% qoq to US$2.0b) – came in slightly above our estimates. Operating margin came in at 3.9% (-1.0ppt yoy and +0.3ppt qoq). Operating margins for both ISG (-3.0ppt yoy and +1.1ppt qoq to -1.5%) and SSG (+0.2ppt yoy and +0.4ppt qoq to 20.4%) exceeded expectations while operating margin for IDG (+0.1ppt yoy and flat qoq to 7.4%) is in line with our estimates. Net profit was US$337m, representing a robust 35.2% sequential recovery, which is above our/consensus’ estimates of US$310m/305m respectively.
