Lenovo Earnings: Strong Period Driven by Resilient Off-Season PC Demand; Fair Value Increased by 17%

Lenovo reported its full fiscal year 2023/24 (ending March 2024) numbers on Thursday, which beat our expectations. March-quarter revenue and operating income of USD 13.8 billion and USD 489 million, respectively, exceeded our forecasts of USD 13.3 billion and USD 383 million as the intelligent devices group, which is mainly PCs, showed resilience despite the off-season. On the other hand, the infrastructure solutions group continued to post an operating loss due to a worse-than-expected product mix and high-cost structure, as Lenovo could not respond to the rapid shift in demand from general servers to artificial intelligence servers last year. However, it is encouraging that management is confident of winning future orders by leveraging the expanded product lineup. As a result, we increase our revenue forecasts for Lenovo by approximately 4% due to higher average selling price assumptions for PCs and server revenue growth assumptions. Accordingly, we revised our fair value estimate for Lenovo to HKD 14 from HKD 12. We believe that the strong recovery in PC shipments in 2025 stimulated by the rollout of AI PCs is not fully priced in.