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Lenovo Q3 FY25 Preview: Strong Beat Expected on AI PC Growth and DeepSeek Impact









Comprehensive Analysis of Lenovo Group by UOB Kay Hian

Comprehensive Analysis of Lenovo Group by UOB Kay Hian

Broker: UOB Kay Hian

Date: February 12, 2025

Overview of Lenovo Group’s Financial Performance and Market Outlook

Lenovo Group, a globally renowned leader in intelligent devices, continues to showcase robust growth across its business segments. In its latest report, UOB Kay Hian maintains a bullish outlook on Lenovo, reiterating the “BUY” recommendation and raising the target price from HK\$12.00 to HK\$14.30, reflecting a 17.6% upside potential. The company’s strong foothold in the PC market, innovative AI-driven solutions, and strategic restructuring of its Infrastructure Solutions Group (ISG) are key drivers of its projected growth.

Key Highlights from Lenovo’s 3QFY25 Results Preview

Lenovo is set to announce its 3QFY25 results on May 20, 2025, and UOB Kay Hian anticipates a solid beat across key metrics. The estimated revenue for the quarter is US\$18.3 billion, marking a year-on-year growth of 16.5% and a quarter-on-quarter increase of 2.6%. Net profit is expected to rise by 19.1% year-on-year and 11.9% quarter-on-quarter, reaching US\$401 million. These figures surpass both Bloomberg consensus estimates and management guidance.

The Intelligent Device Group (IDG) is a standout performer, with PC and smartphone shipments exceeding expectations. The success of Lenovo’s ISG segment, driven by strong demand for traditional servers and ongoing restructuring efforts, further cements the company’s growth trajectory.

Financial Projections for FY24-FY27

Lenovo’s financial performance is poised for sustained growth, as outlined in UOB Kay Hian’s projections:

  • FY25 revenue is forecasted at US\$66.9 billion, a 17.7% increase from FY24.
  • Net profit is expected to rise to US\$1.29 billion in FY25, with further growth to US\$2.35 billion by FY27.
  • Operating profit margins are projected to improve steadily, reaching 4.2% by FY27.
  • Return on Equity (ROE) is forecasted to climb from 18.1% in FY24 to 27.8% in FY27, highlighting Lenovo’s improving profitability and efficiency.

Challenges and Opportunities

Impact of US Tariffs

The ongoing US import tariffs on goods from China pose a potential risk for Lenovo and other PC manufacturers. With over half of US laptop imports sourced from China, a 10-15% impact on the bottom line is estimated for a 10% extra tariff. However, Lenovo’s production facility in Monterrey, Mexico, offers a strategic advantage in mitigating these risks and expanding manufacturing capacity in the US.

Adoption of DeepSeek Technology

Lenovo’s collaboration with DeepSeek, an efficient and cost-effective AI model, is a game-changer for its AI PC innovations. The integration of DeepSeek into Lenovo’s in-house Xiaotian AI assistants enhances the company’s product offerings and positions it as a leader in AI PC adoption. The emergence of accessible AI solutions is expected to drive significant replacement demand for PCs and servers, strengthening Lenovo’s market position.

Valuation and Recommendation

UOB Kay Hian maintains its “BUY” recommendation for Lenovo and raises its target price to HK\$14.30, based on 11.5x FY26F PE, which aligns with peers’ average. The company’s leadership in AI PC adoption and its unique position in the Chinese market are key factors supporting this valuation. Lenovo’s strategic investments in high-performance models like DeepSeek and its proactive market positioning underscore its potential for sustained growth.

Final Thoughts

Lenovo Group’s strong financial performance, innovative AI solutions, and strategic market positioning make it a compelling investment opportunity. With a clear roadmap for growth and a proactive approach to addressing market challenges, Lenovo is well-positioned to deliver long-term value to its shareholders.


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