Citigroup: LENOVO GROUP (00992) first fiscal quarter results far exceed expectations, validating the AI growth narrative.

Citibank published a research report stating that, based on the sum-of-the-parts valuation method, it has set the target price for LENOVO GROUP (00992) at HKD 31, corresponding to an estimated price-to-earnings ratio of about 13.6 times for the fiscal year 2028. Among this, the IDG and SSG businesses are valued at a price-to-earnings ratio of 10 times, while the ISG business is valued at 16.7 times, in line with industry levels. The bank maintains a "Buy" rating for LENOVO GROUP, optimistic about the strong outlook for server demand and profitability, as well as the stable performance of personal computers, mobile phones, and services. LENOVO GROUP's performance for the first quarter of the fiscal year 2026/27 ending in June was strong, significantly exceeding Citibanks expectations, further reinforcing the narrative of structural growth driven by artificial intelligence. During this period, revenue surged by 43% year-on-year to USD 26.943 billion, setting a quarterly historical record, which was 24% and 20% higher than Citibank's and market expectations, respectively. The growth in performance was primarily supported by explosive growth in the Infrastructure Solutions Group (ISG) and the continued leadership of the Intelligent Devices Group (IDG). The gross profit margin widened to 16.5% year-on-year, exceeding Citibank's and market expectations, reflecting an improved revenue mix and expansion of ISG's gross profit margin. Non-GAAP net profit surged 176% year-on-year to USD 1.075 billion, exceeding Citibank's and market expectations by 64% and 149%, respectively, while the non-GAAP net profit margin expanded to 4%. In terms of business segments, IDG revenue grew by 27% year-on-year to USD 17.1 billion, with an operating profit margin stable at 7.1%. The global personal computer market share reached 24.2%, further widening the gap with the second largest competitor. ISG revenue hit a quarterly record high, growing 98% year-on-year to USD 8.5 billion, with the operating profit margin expanding to 9.1%. This growth was driven collectively by cloud service providers and enterprise and small-to-medium business clients, with strong demand for artificial intelligence servers and related pipeline orders reaching USD 54 billion, up 157% quarter-on-quarter, reflecting the acceleration of AI cloud momentum and the increase in enterprise clients' AI workload. The Solutions and Services Group (SSG) revenue grew by 28% year-on-year to USD 2.9 billion, with the operating profit margin expanding to 24.2%, while revenue from managed services and projects and solutions reached a record high of 62.4%.