Matthew Kwok: LENOVO GROUP (00992): Buy $6.50, Target:$7.20, Stop: $6.20
LENOVO GROUP (00992)'s revenue for 2011/12 jumped nearly 37% to US$29.5 billion; profit surged 74% to US$475 million and overall profit margin inched higher 0.8 percentage point to 11.7%. LENOVO GROUP has surpassed Dell and become the second largest personal computer manufacturer. The group gets 42% of income from developed markets, such as North America, Western Europe and Japan. The sales of commercial business grew 35% last year, particularly that in North America and Western Europe soared 30% and 37% respectively. China market made up 42% of revenue, and the demand for personal computer in China has not been affected by economic slowdown. China has become the largest PC market in the world with 13% industry growth in 2011, and LENOVO GROUP posted 25% growth in domestic sales during the year with market share moving up to 32%, securing the leadership in the industry. Leveraging on strong sales network and good brand image, the group is advantageous in developing third and fourth tier cities where computer penetration rate is low. LENOVO GROUP is actively developing mobile products. Its MIDH segment, which is mainly engaged in developing mobile products, is in preliminary stage, making up 5% of revenue in 2011. The group will also launch mid-to-high-end smartphone LePhone targeting various users, as well as the starter-handset with selling price over RMB1,000 in order to secure the smartphone market. The group also put out the first tablet computer in the first quarter last year, becoming the fourth largest tablet computer maker in the world in the first quarter this year. It has also launched its first smart TV in May 2012 in order to optimize product mix.
(By an SFC licensed person, who does not hold the above-mentioned stock, to provide advice on securities.)
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