HSBC Research lowers Lenovo Group's target price to 12.1 yuan, maintains "Buy" rating

HSBC Global Research published a report, considering the slowdown in Lenovo Group's (00992.HK) PC shipment growth and the nominal interest on the $2 billion convertible bonds, respectively lowering the earnings per share estimates for the fiscal years 2026 and 2027 (ending in March of each year) by 12% and 18%. The target price was reduced from the original HKD 14.8 to HKD 12.1, maintaining a "Buy" rating.

The bank believes that due to the expectation of continued profitability in Lenovo Group's server business, its operational forecast for fiscal year 2026 is 3% higher than market predictions. The bank is optimistic about Lenovo's leading position in the AI computer field and expects its server business to remain profitable in the future.

The bank pointed out that Lenovo Group's earnings per share for the fourth quarter of fiscal year 2025, ending in March this year, were below expectations, mainly due to significant non-cash losses caused by warrants. However, the quarterly gross margin of 16.4% exceeded both the bank's and market expectations.

HSBC Research further noted that despite the weakening shipment outlook, the PC product mix continues to improve, with an expected quarter-on-quarter sales growth of about 5% for the IDG business (personal computers and mobile devices) for the first fiscal quarter ending in June. Although there is uncertainty in shipments, Lenovo's management still expects that the increase in penetration rates of commercial computers and AI computers will drive growth momentum. Therefore, the bank anticipates that the personal computer upgrade cycle will accelerate, leading to a recovery in the IDG business gross margin in fiscal year 2026.

The bank is optimistic about Lenovo maintaining profitability in the ISG business, expecting this business to record an operating profit of $43 million in fiscal year 2026 (compared to an operating loss of $69 million in fiscal year 2025)