The Market Underestimates the Resilience of Lenovo’s Business Portfolio; Reducing FVE to HKD 10.50

Despite the headwinds, Lenovo reported another impressive quarter. Although September quarter revenue was 4.4% down from the previous year, its operating income was up 4.2%, exceeding our expectations. While we cut Lenovo’s fair value estimate to HKD 10.50 from HKD 12.60 due to the stronger U.S. dollar and lower PC shipment outlook, we believe the market is underestimating the resilience of Lenovo’s business portfolio. We acknowledge Lenovo’s shares lack a catalyst for the meantime as the recovery of PC demand will likely be slower than for other IT products. However, we view most risk factors are priced in as Lenovo’s price/earnings and price/book ratios are at the bottom of its historical range.