Morgan Stanley: Lenovo's sales decline guidance is overly conservative, maintaining "In line with the market" rating

Morgan Stanley's research report indicates that Lenovo Group (00992.HK) is expected to report an adjusted net profit of USD 589 million for the third quarter of the fiscal year 2026, reflecting a quarter-on-quarter increase of 15% but a year-on-year decline of 15%, which is higher than the bank's and market expectations.

Management anticipates that overall PC sales will decline in the mid-single digits year-on-year, while smartphone sales are expected to decline in the high-single digits year-on-year. However, based on the rising speed of memory prices, the bank believes the company's expectations are still overly conservative and foresees downside risks, as January's original equipment manufacturer (OEM) shipments fell short of expectations, leading the bank to see a more cautious outlook for the PC supply chain. In addition to memory, management mentioned that rising central processing unit (CPU) costs also impact overall costs.

The company is focusing on protecting profit margins, including raising prices, adjusting product mix, product innovation, and expanding its supplier base. Morgan Stanley believes these measures will have some effect, but will still not be sufficient to fully offset rising costs. However, the bank considers Lenovo to be the best-performing company among the covered OEMs in the Greater China region; it maintains a "Market Perform" rating with a target price of HKD 9.8