[ET Net News Agency, 30 May 2018] HSBC Global Research raised its target price for
Lenovo Group (00992) to HK$4.4 from HK$4.1, and maintained its "hold" rating.
The research house noted Lenovo's F4Q18 missed on slower opex reduction than its
expectation. It believes the expenses for Lenovo's ongoing group restructuring exercise
(including expenses for joint R&D investments across business group (BGs)) have offset the
profitability improvement at the BG level in F4Q18 and will continue to drag on the
company's overall profitability going forward. It believes the widened pre-tax loss from
other businesses resulted mainly from the expenses for the company's ongoing group
restructuring, as well as expenses for joint R&D investments across BGs in innovative
fields such as IoT, big data and AI.
HSBC cuts FY19e-20e EPS forecasts by 9.6% and 8.7% to 3.62 and 4.77 US cents,
respectively, to reflect the expected higher expenses for group restructuring (including
joint R&D investments across BGs) and fewer tax credits going forward due to shutdown of
some non-profitable operations. It expects FY19e to be a year of turnaround from FY18's
net loss, which was hurt mainly by a US$400m one-time non-cash write-off of deferred
income tax assets, followed by 32% EPS growth in FY20e from the relatively low FY19e base.
However, both HSBC's forecast FY19e-20e EPS will not recover to FY17's level yet. (HL)