Core Viewpoint - Lenovo Group reported strong financial performance for 1QFY26, with revenue reaching $18.83 billion, a 22% year-on-year increase, marking a record high for the first quarter [1] Financial Performance - Revenue for 1QFY26 was $18.83 billion, up 22% year-on-year, with significant growth across regions: China (+36%), Asia Pacific (+39%), Americas (+14%), and EMEA (+9%) [1] - Non-HKFRS net profit was $389 million, a 22% increase year-on-year, while net profit attributable to shareholders was $505 million, up 108% [1] - The increase in net profit was partly due to a non-cash fair value gain of $152 million related to warrants and nominal interest of $27.82 million from convertible bonds [1] Business Trends - The PC business showed strong growth, with IDG revenue increasing by 17.8% to $13.46 billion, and personal PC revenue growing by 21.9%, the fastest growth in 15 quarters [1] - Lenovo's global PC shipment growth of 15.2% outpaced the industry average of 6.5%, leading to a market share of 24.6% [1] - AI PC shipments accounted for over 30% of total PC shipments in 2Q25, with a 27% share in the Chinese market, highlighting Lenovo's leadership in the AI PC sector [1] - The "Tianxi" personal super intelligent system has seen increased user engagement, with a weekly active user ratio averaging 40% by the end of 2Q25 [1] AI Infrastructure - ISG revenue reached $4.29 billion, a 36% year-on-year increase, despite an operating loss of $86 million due to lower margins from AI server sales and increased R&D investments [2] - AI infrastructure revenue grew by 155% year-on-year, driven by strong demand for AI computing power [2] - In China, ISG revenue increased by 76%, with improved profitability and a 3 percentage point rise in operating profit margin [2] Profit Forecast and Valuation - The company has cautiously raised FY2026/27 non-HKFRS net profit estimates by 2.3% and 2.8% to $1.687 billion and $1.968 billion, respectively [2] - Current stock price corresponds to a P/E ratio of 10.3x for FY2026 and 8.8x for FY2027, with a target price of HKD 13.40, indicating a 24% upside potential [2]

Core Viewpoint - Shenwan Hongyuan has initiated coverage on Lenovo Group (00992) with a "Buy" rating, indicating significant upside potential due to its undervalued position as an ICT full-stack supplier and the presence of untapped stock price catalysts [1] Group 1: Market Dynamics - The report highlights a positive outlook for the PC market, driven by a peak in online office PC purchases from 2020 to 2022, the end of Windows 10 support prompting replacement demand, and the innovative AIPC product stimulating new demand [1][4] - Lenovo has established a stable business model that has allowed it to grow from a local player to a global leader in the PC market, with a strong correlation between its revenue and the global PC market's performance [1][2] Group 2: Revenue Composition - Historically, PCs accounted for about 70% of Lenovo's revenue, but the rise of AI has shifted growth drivers towards mobile devices, servers, and industry-specific intelligent solutions [2] - The ISG segment, primarily focused on servers, is seeing an increasing revenue share due to the global AI capital expenditure, while the SSG segment is expected to grow rapidly as enterprises undergo digital transformation [2][5] Group 3: AI Strategy - Lenovo is transitioning from a hardware supplier to a software service provider, leveraging AI as a key focus area, with the establishment of two major AI ecosystems: Qingtian 3.0 and Tianxi [2][3] - The company aims to create an "AI ecosystem" that integrates various AI applications, positioning itself as a critical player in the hybrid AI landscape [3] Group 4: Business Segments - In the IDG segment, Lenovo is experiencing a recovery in PC sales and rapid growth in mobile devices, with a projected revenue share of 73% for FY24/25 [4] - The SSG segment is expected to contribute around 6% of revenue for FY24/25, driven by the Qingtian 3.0 platform and a strong software ecosystem [4] - The ISG segment, which includes servers and storage, is projected to account for 21% of revenue for FY24/25, benefiting from partnerships with large CSPs and the growing demand for AI applications [5] Group 5: Valuation - Lenovo's projected PE ratio for FY25/26 is 9x, significantly lower than the average PE of 16x for comparable global ICT suppliers, indicating substantial room for price appreciation [6]

Group 1: Apple and Microsoft Collaboration - Apple and Microsoft have reached an annual search partnership, which poses a direct challenge to Google's long-standing dominance in search engines [1][2] - Apple previously received approximately $20 billion annually from Google for being the default search engine on its devices, and this partnership is under scrutiny due to ongoing antitrust litigation against Google [2] - Eddy Cue noted a decline in Safari's search volume attributed to users shifting towards AI-driven search, prompting Apple to consider a significant overhaul of Safari towards AI-based search engines [2][3] Group 2: AI Search Landscape - The rise of generative AI has made AI search a competitive focus for various tech companies, with OpenAI launching ChatGPT's search function and Google introducing real-time search capabilities through its Gemini AI platform [2][3] - Domestic companies like Tencent, 360, and Xiaohongshu are also investing in AI search technologies, indicating a broader industry trend towards AI-driven information retrieval [3] Group 3: Lenovo's Super AI Launch - Lenovo has introduced a super AI, Tianxi, which will be integrated into its latest personal computers, smartphones, and tablets, enhancing user interaction and decision-making capabilities [4] - The AI aims to facilitate complex task management and improve user experience through multi-modal perception and intent-driven interactions [4] Group 4: AI Payment Systems - Visa, PayPal, and Mastercard are venturing into AI payment systems, allowing AI agents to make autonomous payment decisions based on user preferences and transaction history [5][6] - PayPal is developing a Financial OS for AI transactions, while Mastercard and Visa are collaborating with major tech firms to enhance AI payment capabilities [6] Group 5: U.S. Tech Giants Testify on AI Competition - Executives from major U.S. tech companies attended a congressional hearing to discuss the implications of AI competition, emphasizing the need for robust innovation and addressing export control policies that may hinder market competitiveness [7][8] Group 6: E-commerce Collaboration - Taobao and Xiaohongshu have announced a strategic partnership to enhance consumer conversion from social media to e-commerce, allowing direct links from Xiaohongshu posts to Taobao [9] Group 7: Apple's Legal Challenges - Apple has appealed a California court ruling that prohibits it from obstructing developers' communication with users and charging fees for external purchases, arguing that the ruling imposes significant costs [10][11]

Core Insights - Lenovo's Tech World 2025 emphasizes a more relatable approach, showcasing AI products that cater to everyday users rather than just high-tech concepts aimed at enterprises [1][9] - The event featured notable personalities, including celebrity Da Zhangwei, who demonstrated personal AI capabilities, indicating a shift towards consumer-friendly AI applications [1][4] Group 1: AI Product Development - Lenovo is transitioning towards scaling AI products, focusing on the development of "super intelligent agents" that feature multimodal perception and autonomous execution capabilities [9][10] - Two super intelligent agents were launched: "Tianxi" for personal use and "Lexiang" for enterprises, both capable of multimodal interactions [9][10] Group 2: Strategic Collaborations and Innovations - Lenovo is collaborating with Tsinghua University and Wuwenchin Qiong to develop a reasoning acceleration engine, enhancing application performance while reducing power consumption [10] - The company introduced advanced AI infrastructure, including the upgraded "Wanquan 3.0" platform, which addresses inference demands and slow node issues in large-scale clusters [19] Group 3: New Product Launches - Lenovo unveiled four new devices equipped with super intelligent agents, including the AI foldable smartphone Moto Razr 60 Ultra AI, the AI tablet Yoga Pad Pro 14.5, and the rollable screen AI PC ThinkBook Plus Rollable [10][14] - The gaming handheld Legion 9i AI was also introduced, featuring AI capabilities for enhanced graphics rendering [14] Group 4: Infrastructure Enhancements - Lenovo's advancements in cooling technology include the "Flying Fish" bionic cooling design and a dual-circuit phase change immersion cooling system, significantly improving heat dissipation capabilities [19] - The company is also focusing on ensuring data security in AI applications, introducing Deepfake detection technology integrated into their super intelligent agents [10] Group 5: Market Outlook - Lenovo's CEO Yang Yuanqing highlighted uncertainties in the market, particularly due to geopolitical factors and U.S. tariff policies affecting high-tech products, but indicated that product pricing would remain stable for now [19][20]