"Big Banks" JP Morgan: Lenovo Group's quarterly performance expectations are good, but cost pressures are rising. Rating "Neutral"

JP Morgan released a report indicating that Lenovo Group (00992.HK) as of the end of December last year highlighted key points from the fiscal year 2026 third-quarter earnings meeting, including stronger-than-expected performance driven by the Intelligent Devices Group (IDG); the Infrastructure Solutions Group (ISG) recorded a loss in the fiscal year 2026 third quarter despite revenue exceeding expectations; Lenovo incurred a one-time restructuring expense of $285 million in the fiscal year 2026 third quarter for ISG, which is expected to save $200 million annually over the next three years, indicating a potential for more sustainable momentum in fiscal year 2027; revenue growth for IDG in fiscal year 2027 is expected to slow due to a decline in shipments in the personal computer and smartphone industries.

Despite the robust performance in the fiscal year 2026 third quarter, Lenovo's stock price still recorded a negative reaction during afternoon trading on the same day. The firm believes that the market is focusing on the increasing downside risks to earnings in a cost inflation environment. Although Lenovo is likely to outperform its peers due to its industry leadership, the firm believes that the stock price valuation will remain under pressure in the medium to short term.

JP Morgan lowered its earnings forecast for fiscal year 2027 by 5%, maintained its earnings forecast for fiscal year 2028, extended the target price to December 2026, and kept the target price at HKD 9.5 with a "Neutral" rating unchanged