机构:银河证券
评级:未评级
Core net profit meets market expectations. Lenovo reported its Q3 FY18results yesterday. Its Q3 FY18 net loss was US$289m vs. a net profit ofUS$98m in Q3 FY17. The reported net loss in Q4 FY18 was mainly due to aUS$400m write-off of deferred income tax assets, following the Tax Cuts andJobs Act enacted by the US Government. Lenovo reported profit beforetaxation of US$150m in Q3 FY18, up from US$101m in Q3 FY17. Excludingthe impact of the write-off of deferred income tax assets, Lenovo’s Q3 FY18results are in line with market expectations. Lenovo’s turnover wasUS$12,939m in Q3 FY18, up 6% YoY, driven mainly by an 8% YoY increasein turnover for the PC & Smart Device Business Group and a 17% YoYincrease in turnover for the Data Center Business Group. The Mobile Divisionreported a 5% YoY decline in turnover in Q3 FY18. We believe that Lenovo’sQ3 FY18 results show that the Company’s transformation has paid off, as allgeographical segments, including China, Asia Pacific, EMEA and theAmericas, reported positive YoY top-line growth, there was a 0.4% YoYimprovement in gross margin, and the business divisions, including the PC &Smart Device Business Group and Data Center Business Group, reportedprogress in operating performance. The Company also controlled expenseswell, as the expense-to-revenue ratio remained flat YoY at 12%, so theincrease in turnover is reflected in the bottom line.
PCs held up well, severs showed progress but smartphones remained a drag. The PC & Smart Device Business Group reported a pre-tax profitmargin of 4.5% in Q3 FY18, down from 5% in Q3 FY17 but up from 4.4% inQ2 FY18. The QoQ improvement in profit margin was due to better pricingand a more favorable product mix. In the results conference call, Lenovomanagement mentioned that the Company has a positive view on the outlookfor the PC & Smart Devices Business Group in 2018, given the improvementin the performance of the China market and growing gaming productshipments. Given the stabilization of the PC market, Lenovo’s PC & SmartDevice Business Group should report a continuous improvement in operatingperformance, as management is focusing more on profitability than volumeshipment growth. The stable performance of the PC division should providesupport for Lenovo to turn around the server and smartphone businesses.
Our view. We believe that the market may take the view that there isno major catalyst to re-rate Lenovo and stay on the sidelines. But theCompany’s Q3 FY18 results show that its transformation strategy ispaying off, so we take this as a starting point for rebuildingconfidence in the Company. We suggest investors take a moreconstructive view of Lenovo, especially since its turnover resumedgrowth in Q3 FY18. There was a massive de-rating, and its shareprice underperformed in the China TMT hardware segment, and webelieve negatives such as the weak performance of the Mobile GroupBusiness have been priced in. The news flow may boost sentimenton the Company and trigger share price movement. Recent industrynews flow suggests that PC and server market performance isresilient. The market treats Lenovo as a proxy for the PC and servermarket. If Lenovo is removed from Hang Seng Index in the upcomingreview, we think it would a very good time to revisit.
Risks: Longer-than-expected turnaround of the mobile business group and weaker PC shipments.