International investment bank Macquarie released a research report stating that LENOVO GROUP (00992) delivered strong operating profits in its IDG and SSG segments during the first quarter, exceeding expectations. The firm maintains its buy rating with a target price of HK$13.10.

Macquarie believes that first-quarter results exceeded expectations with revenue growing 22% year-over-year, outperforming Macquarie's forecast and market consensus by 6% and 8% respectively.

Intelligent Devices Group (IDG): Revenue increased 18% year-over-year, exceeding both Macquarie's expectations and market consensus by 6% each. This growth was driven by strong market share gains in major PC markets and rising average selling prices (ASP). Smartphone revenue achieved double-digit growth year-over-year, with particularly strong performance in Japan and India markets. Operating profit margin (OPM) increased 0.3 percentage points quarter-over-quarter to 7.1%. The personal computer market is expected to achieve mid-to-high single-digit growth for the remainder of the year, driven by Windows 11 system upgrade benefits.

Infrastructure Solutions Group (ISG): Revenue grew 36% year-over-year, surpassing Macquarie's expectations and market consensus by 5% and 11% respectively. This growth benefited from continued partnerships with cloud service provider (CSP) customers, double-digit year-over-year growth in enterprise segment revenue, and AI server revenue growing more than double year-over-year.

Solutions and Services Group (SSG): Revenue increased 20% year-over-year, exceeding Macquarie's expectations and market consensus by 9% and 7% respectively, with OPM improving 1.2 percentage points year-over-year. This was attributed to major client signings across industries and higher adoption rates of the "capex-to-opex" model. Device-as-a-Service and Infrastructure-as-a-Service achieved double-digit and triple-digit growth respectively.

Therefore, Macquarie maintains its optimistic stance for the following reasons: 1) PC refresh cycles and AI upgrades will drive product mix improvement; 2) Service revenue continues steady growth (approximately 10%), expected to deliver above-average operating profit margins (OPM); 3) Server revenue scale continues expanding, and once capacity increases, the Infrastructure Solutions Group (ISG) operating profit margin will return to positive territory.

Based on this, Macquarie has raised its non-HKFRS net profit forecasts for fiscal years 2026, 2027, and 2028 by 8%, 12%, and 13% respectively, primarily due to revenue growth in the Intelligent Devices Group (IDG) and Infrastructure Solutions Group (ISG). Based on 11 times diluted non-HKFRS earnings per share (including dilution impact of convertible bonds), the firm maintains its buy rating with a target price of HK$13.10.