Citi: Cuts LENOVO GROUP (00992) target price by 20% to HK$40, maintains "Buy" rating

Citi issued a research report stating that it has cut the target price for LENOVO GROUP (00992) by 20%, from HK$50 to HK$40, reflecting the potential share dilution impact from convertible bonds and warrants, as well as updates to its valuation model, while maintaining a "Buy" rating. Citi expects LENOVO GROUP to deliver another solid performance in the second quarter of fiscal year 2026/2027 (ended September), driven by continued strong growth in the Infrastructure Solutions Group (ISG), solid execution in the Intelligent Devices Group (IDG), and continued double-digit expansion in the Solutions and Services Group (SSG). Although recent market concerns about highly leveraged AI infrastructure operators have triggered volatility in the AI supply chain, the bank believes that LENOVO GROUP has limited direct exposure to high-risk "Neocloud" customers. The company's robust risk control measures and comprehensive accounts receivable insurance effectively alleviate market concerns about its balance sheet. The bank expects the company's revenue for the second quarter of fiscal year 2026/2027 to be US$27.1 billion (up 33% year-on-year, up 1% quarter-on-quarter, broadly in line with market consensus), with adjusted net profit of US$1.18 billion (49% above market consensus). This reflects continued strong revenue momentum in the ISG business and sustained margin improvement (gross margin 1 percentage point above market consensus). ISG is expected to remain the primary earnings DRIVE, with second-quarter revenue up 135% year-on-year and operating margin maintained at 9%.