Daiwa Research raised its target price for Lenovo Group (00992) to HK$12.6 from HK$11.4, and maintained its "hold" ratings.
Although over the longer term the research house expects potential upside to be driven by its past M&A activity (ie. from Motorola Mobility [MMI] and IBM's System X server division), it remains cautious in the near term, due to the ongoing M&A integration, weaker QoQ smartphone demand in China, and the strengthening USD.
Following its seasonally weaker 4Q FY15 (ie. March quarter), Daiwa believes Lenovo's financial performance may not improve much in 1Q FY16 due to PC demand could remain weak before the launch of Windows 10 in late July; uncertainty in its smartphone business may continue, given lacklustre demand in China, which currently accounts for nearly 60% of its shipments, and ongoing integration with MMI; and the strengthening USD vs. the CNY. The research house expects 3% QoQ growth in 1Q FY16 revenue (vs. 11% previously), and operating margin to reach 1.1% (vs. 1.8% previously).
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