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Lenovo Group Ltd 00992

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Stock XHKG Rating as of
HKD 11.10 −0.18 (1.60%)
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Company Report

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Lenovo: Strategic Collaboration With Alat to Issue Convertible Bonds for Regional Expansion

Kazunori Ito

Lenovo announced a strategic collaboration with Alat, a wholly owned subsidiary of the Public Investment Fund, the sovereign wealth fund of the Kingdom of Saudi Arabia. The company will issue USD 2 billion of zero coupon convertible bonds to Alat, which will be convertible upon maturity in three years. If fully converted, there will be a dilution of 12.1% based on the conversion price of HKD 10.42 per share, which is approximately 10% below the closing price on May 29, 2024. We maintain our fair value estimate for Lenovo of HKD 14 per share for now, as we believe the benefits of the deal, such as interest savings and revenue growth potential, are largely offset by the dilution.

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Price vs Fair Value

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00992 is trading at a 177% premium.
Price
HKD 11.28
Fair Value
HKD 41.00
Uncertainty
High
1-Star Price
HKD 26.60
5-Star Price
HKD 5.40
Economic Moat
Cqs
Capital Allocation
Snwgbzkr

Bulls Say, Bears Say

Bulls

Lenovo expands its hyperscale data center market share, particularly within major cloud infrastructure providers Amazon, Microsoft, Google, and Alibaba, enabling it to reach meaningful scale that is necessary to turn around data center profitability.

Bears

Lenovo faces heightened price competition from original design manufacturers, which produce white-box servers for hyperscale data centers, as cloud service providers seek to push down costs.

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Trading Information

Previous Close Price
HKD 11.28
Day Range
HKD 11.02–11.44
52-Week Range
HKD 7.23–12.26
Bid/Ask
HKD 11.08 / HKD 11.10
Market Cap
HKD 133.39 Bil
Volume/Avg
11.3 Mil / 62.7 Mil

Key Statistics

Price/Earnings (Normalized)
16.63
Price/Sales
0.33
Dividend Yield (Trailing)
3.37%
Dividend Yield (Forward)
3.37%
Total Yield
3.37%

Company Profile

Lenovo is a global technology hardware company with a leading market share in personal computers. Its operations are divided into three main business segments: PC and smart devices, mobile, and data center, which we expect to account for 60%, 13%, and 17% of sales in the midterm, respectively. The firm has been actively growing its data center business, which primarily sells network servers to enterprise and hyperscale customers, as well as storage equipment through its mainland China joint venture with NetApp. Server-related revenue contribution has jumped to 16% of overall sales in fiscal 2022, from 6% in 2015.
Sector
Technology
Industry
Computer Hardware
Stock Style Box
Large Value
Total Number of Employees
69,500
Website
https://www.lenovo.com

Competitors

Valuation

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Metric
00992
DELL
HPQ
Price/Earnings (Normalized)
 16.6320.1210.28
Price/Book Value
 3.10——
Price/Sales
 0.331.170.66
Price/Cash Flow
 8.6713.208.21
Price/Earnings
00992
DELL
HPQ

Financial Strength

Metric
00992
DELL
HPQ
Quick Ratio
 0.560.400.38
Current Ratio
 0.870.730.75
Interest Coverage
 5.443.246.93
Quick Ratio
00992
DELL
HPQ

Profitability

Metric
00992
DELL
HPQ
Return on Assets (Normalized)
 3.03%6.27%9.22%
Return on Equity (Normalized)
 20.85%——
Return on Invested Capital (Normalized)
 12.74%25.93%41.27%
Return on Assets
00992
DELL
HPQ
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