Core Viewpoint - The largest technology event in the Middle East, LEAP 2025, has opened in Riyadh, Saudi Arabia, showcasing advanced technology solutions and partnerships [1] Group 1: Event Overview - LEAP 2025 is the largest technology and information technology exhibition in the Middle East, taking place in Riyadh, Saudi Arabia [1] Group 2: Company Developments - Lenovo Group presented multiple cutting-edge technology achievements at LEAP 2025 [1] - Lenovo and IBM announced an expansion of their strategic technology partnership, focusing on artificial intelligence solutions [1] Group 3: Strategic Partnership - The collaboration will leverage IBM's watsonx AI product suite and integrate it with the open-source Arabic large language model (ALLaM) from the Saudi Data and Artificial Intelligence Authority (SDAIA) [1] - The innovative solutions are expected to accelerate the application of artificial intelligence for the Saudi government and enterprise clients [1]

Core Viewpoint - The Hong Kong Stock Connect saw active trading on February 7, with a total turnover of 450.94 billion HKD, accounting for 37.37% of the day's trading volume, and a net buying amount of 10.60 billion HKD [1] Group 1: Trading Activity - The total turnover of active stocks in the Hong Kong Stock Connect reached 450.94 billion HKD on February 7 [1] - Active stocks accounted for 37.37% of the total trading volume on that day [1] - The net buying amount for the day was 10.60 billion HKD [1] Group 2: Individual Stock Performance - Tencent Holdings led the trading with a turnover of 79.57 billion HKD [1] - SMIC (Semiconductor Manufacturing International Corporation) followed closely with a turnover of 79.01 billion HKD [1] - Xiaomi Group-W also showed significant trading activity with a turnover of 78.63 billion HKD [1]

Company Performance - Lenovo's personal computer shipments increased by 2% quarter-over-quarter as of December, surpassing expectations and outperforming the global market growth [1] - The company's shipments in the upcoming quarter ending in March are expected to slightly exceed historical seasonal performance, driven by the Windows 11 update cycle and government subsidies in the Chinese market [1] Analyst Recommendations - Goldman Sachs set a target price of HK$13.28 for Lenovo and assigned a "Buy" rating [1]

Strategic Partnership and Investment - Lenovo Group Limited and Alat, a company under Saudi Arabia's Public Investment Fund (PIF), have completed a 3-year $2 billion interest-free convertible bond investment [1] - The strategic cooperation agreement between Lenovo and Alat was previously announced in May 2024 [1] Regional Expansion and Manufacturing Plans - Lenovo will establish its Middle East and Africa regional headquarters in Riyadh, Saudi Arabia [1] - A new sustainable manufacturing base will be built in Saudi Arabia, leveraging local R&D teams to create end-to-end "Made in Saudi" products [1] - The new factory is expected to commence production in 2026, with an annual output of millions of personal computers and servers [1]

Industry Trends - Large model technology and products will accelerate iterative innovation and evolve towards general artificial intelligence [1] - AI terminal products such as AI computers and AI phones will become more diverse and innovative, with stronger computing power, richer applications, and more personalized intelligent services [1] - The demand for intelligent computing infrastructure will continue to grow, moving towards greener and more low-carbon development [1] Company Strategy (Lenovo) - Lenovo will continue to focus on hybrid AI in 2025, developing more forms of AI terminal products including AI phones, AI tablets, and AI headphones [2] - The company aims to create a cross-device, cross-platform personal intelligent body, providing seamless and secure experiences [2] - Lenovo will offer full lifecycle services for hybrid infrastructure design, deployment, expansion, and maintenance, and build a modular and customizable AI service library [2] - Lenovo recognized the trend of hybrid AI in 2023 and has made early R&D investments, resulting in the release of a truly AI-powered computer in April 2024 [3] - Lenovo's revenue and net profit have accelerated growth over the past four quarters driven by AI demand [3] Technology Path - Hybrid AI, which combines public intelligence with private intelligence, is the future trend and the path to achieving widespread AI adoption [2] - This approach not only leverages the strengths of public intelligence but also meets personalized and customized AI service needs while protecting user data security and privacy [2] Application Scenarios - The trend of "AI to real" is becoming more evident, with AI accelerating the digital and intelligent transformation across industries [4] - The Central Economic Work Conference emphasized using technological innovation to develop new productive forces and build a modern industrial system, with a focus on "AI+" actions and future industries [5] - China's manufacturing sector, being the largest and most comprehensive globally, offers rich and diverse application scenarios and vast data, making it ideal for integrating AI with the real economy [5] - The integration of AI technology with the real economy can fully leverage China's industrial advantages, releasing efficiency and innovation dividends, and accelerating high-quality development [5]

Company Collaboration - Lenovo announced a collaboration with Volcano Engine to enhance its AI desktop assistant, Ruyi, transforming it from a traditional system tool assistant into an intelligent conversational assistant using the Doubao large model's "super brain" [1] - The collaboration aims to continuously improve the intelligent interaction experience between users and the PC system [1] Industry Event - The 2024 Lenovo Tianxi Ecosystem Partner Conference was held in Beijing on December 26 [1]

Investment Rating - The report initiates coverage with an **OUTPERFORM** rating for the company, with a 6-month target price of HKD 13.57 based on a FY2025 PE of 20x [8][72] Core Views - The company is expected to achieve revenue growth of 9.56%, 7.03%, and 6.44% for FY2025-FY2027, with gross profit margins of 17.74%, 18.24%, and 18.74% respectively [8][72][83] - Net profit is projected to grow to 1.16, 1.61, and 1.98 billion USD for FY2025-FY2027, with EPS of 0.09, 0.13, and 0.16 USD [8][72] - The company's strategic partnership with Alat provides access to sovereign wealth resources and growth opportunities in the MEA region, with expected annual interest savings of 0.11 billion USD [10][25][55] Financial Performance - FY2024 revenue was 56.90 billion USD, down 8.16% YoY, with net profit of 1.01 billion USD, down 37.15% YoY [22][91] - FY2025Q1 revenue grew 19.75% YoY to 15.45 billion USD, with net profit up 37.86% YoY to 0.24 billion USD [22] - Smart devices accounted for 44.60 billion USD, or 78.43% of total revenue in FY2024 [22][91] Business Segments - The Intelligent Devices Group (IDG) is expected to grow at 8%, 7%, and 7% for FY2025-FY2027, contributing 77.32%, 77.30%, and 77.71% of total revenue respectively [83][64] - Infrastructure Solutions Group (ISG) is projected to grow at 18%, 10%, and 8% for FY2025-FY2027, with revenue shares of 16.90%, 17.37%, and 17.62% [64] - Solutions and Services Group (SSG) is expected to grow at 9%, 5%, and 3% for FY2025-FY2027, contributing 13.07%, 12.83%, and 12.41% of total revenue [64] Strategic Initiatives - The company announced a strategic cooperation with Alat, including the establishment of a new regional headquarters in Riyadh for the MEA region [14][25][55] - Innovative financing includes the issuance of 115 million rights at 1.43 HKD each, raising approximately 0.21 billion USD, and a 2 billion USD convertible bond agreement with Alat [34][55] - The proceeds from the convertible bonds will be used for debt refinancing and expanding MEA operations, with no dilution of existing shareholders for the first three years [55] Valuation and Peer Comparison - The company's FY2025-FY2027 P/E ratios are projected at 12.71x, 9.16x, and 7.44x, compared to the industry average of 21.01x, 19.43x, and 18.31x [95] - EV/EBITDA ratios for FY2025-FY2027 are 2.58x, 2.21x, and 1.80x, indicating a relatively attractive valuation compared to peers [13]

Collaboration and Innovation - The China Cyberspace Security Association and Lenovo Group conducted a joint learning and exchange event focusing on party building and business integration [1] - Both parties introduced their party building work and outlined key tasks for 2024, emphasizing the integration of party building with business operations [2] - Future collaboration will focus on areas such as cybersecurity, data security, personal information protection, and AI security governance [2] - The collaboration will include technological innovation, international cooperation, talent development, and forum organization [2] Exhibition and Exchange - The association's party branch visited Lenovo's Innovation Open Day exhibition, engaging in discussions and exchanges [2] - The visit included an experience of Lenovo's innovation showcase, highlighting the company's commitment to technological advancement [2]

Investment Rating - Outperform rating maintained for Lenovo Group (00992 HK) [2][5][13] Core Views - AI PC penetration accelerating, driving earnings growth [2] - Smart Devices and Infrastructure Solutions Groups performed strongly [2][8] - AI integration with products deepening, AI PC accounted for 14% of China notebook shipments in FY2Q2025 [2][8] - Smartphone overseas markets growing rapidly, Motorola achieved double-digit growth [2][8] - Infrastructure Solutions Group revenue surged 65 1% YoY in FY2Q2025, losses narrowing [2][8] Financial Performance - FY1H2025 revenue reached $33 297 billion, up 22% YoY [2][8] - FY1H2025 net profit was $602 million, up 41% YoY [2][8] - FY2Q2025 revenue was $17 850 billion, up 24% YoY and 16% QoQ [2][8] - FY2Q2025 net profit was $359 million, up 44% YoY and 47% QoQ [2][8] - Smart Devices Group revenue was $24 936 billion, up 15% YoY [2][8] - Infrastructure Solutions Group revenue was $6 465 billion, up 65% YoY [2][8] - Solutions Services Group revenue was $4 050 billion, up 12% YoY [2][8] Profitability - FY2Q2025 gross margin was 15 7%, down 0 9 ppts QoQ [2][9] - FY2Q2025 operating expense ratio was 13 2%, down 0 8 ppts QoQ [2][9] - FY2Q2025 net margin was 2 2%, up 0 5 ppts QoQ [2][9] Financial Forecasts - FY2025-2027 revenue forecast raised to 660/719/767 billion yuan [13] - FY2025-2027 net profit forecast adjusted to 12 50/13 90/15 78 billion yuan [13] - FY2025-2027 PE ratios estimated at 12/10/9x [13] Business Segments - Smart Devices Group benefited from overseas smartphone expansion and premium PC shipments [2][8] - Infrastructure Solutions Group driven by AI server demand and Neptune liquid cooling solution [2][8] - Solutions Services Group saw slower growth in high-margin business [2][9]

Investment Rating - The report maintains an "Outperform" rating for Lenovo Group (00992 HK) [2][5][13] Core Views - AI PC penetration is accelerating, driving performance growth [2] - Smart Devices and Infrastructure Solutions business groups performed strongly, with AI driving growth [2][8] - FY1H2025 revenue reached $33 297 billion, up 22% YoY, with net profit of $602 million, up 41% YoY [2][8] - FY2Q2025 revenue was $17 850 billion, up 24% YoY and 16% QoQ, with net profit of $359 million, up 44% YoY and 47% QoQ [2][8] Business Performance Smart Devices Business Group - Revenue reached $24 936 billion, up 15% YoY [2] - Strong performance driven by successful overseas smartphone market expansion and increased share of high-value PC shipments [2][8] Infrastructure Solutions Business Group - Revenue reached $6 465 billion, up 65% YoY [2] - Growth driven by strong demand for AI servers and the company's core advantages in liquid cooling (Neptune solution) [2][8] - Operating loss narrowed to $36 million, with profitability expected in CY2025 [2] Solutions and Services Business Group - Revenue reached $4 050 billion, up 12% YoY [2] Financial Metrics - FY2Q2025 gross margin was 15 7%, down 0 9 ppts QoQ due to product mix changes and slower growth in high-margin solutions services [2][9] - FY2Q2025 operating expense ratio was 13 2%, down 0 8 ppts QoQ [2][9] - FY2Q2025 net profit margin was 2 2%, up 0 5 ppts QoQ [2][9] AI and Market Trends - AI PC penetration in China reached 14% of notebook shipments in FY2Q2025 [2] - Smartphone business achieved double-digit growth in Asia-Pacific, Europe-Middle East-Africa, and North America markets [2] - Foldable smartphones successfully entered the high-end market [2] Financial Forecasts - Revenue forecasts for FY2025-2027 were raised to $66 0/71 9/76 7 billion (from $62 3/67 6/72 1 billion) [13] - Net profit forecasts for FY2025-2027 were adjusted to $1 250/1 390/1 578 billion (from $1 288/1 635/1 901 billion) [13] - Current P/E ratios are 12/10/9x for FY2025-2027 [13] Valuation and Key Metrics - Closing price: HK$9 11 [5] - Market cap: HK$113 006 billion [5] - 52-week high/low: HK$11 83/7 50 [5] - 3-month average daily turnover: HK$585 54 million [5]