HSBC Research lowers Lenovo Group's target price to HKD 12.2, expecting more room for growth in the 2026 fiscal year

The HSBC Research report released on August 16th stated that Lenovo Group (00992.HK) had a gross profit margin of 16.6% in the first quarter ending in June, which is 45 basis points higher than the bank’s expectations but lower than the market forecast of 17.3%. The operating profit margin was 3.2% lower than the bank’s and market’s expectations. The earnings per share of 2.02 US cents met the bank’s forecast and exceeded market expectations by 6%. The bank stated that looking ahead, as the group continues to invest in servers to develop more advanced AI models, it is expected that its server business will continue to record net losses in the fiscal year 2025. Although it is expected that with the continuous recovery of the server market and improvement in revenue scale, the losses may continue to narrow in the coming quarters, it is still difficult to achieve a balance of income and expenditure in the fiscal year 2025. The bank has lowered the group’s earnings forecast per share for 2025-2026 by 14% and 10% respectively, and the target price has been revised down from HK$13.5 to HK$12.2, reiterating a buy rating.