XXXX1102高盛证券联想集团

November2,2011COMMENTLenovoGroup(0992.HK)HK$5.60EquityResearchFirstTake:AboveGS;stronggrowthinallregionsandallproductsNewsLenovoreported2QFY12(Sep-ended)earningsofUS$144mn(+32%qoq;+88%yoy),aboveGSe/Reutersconsensusby+13%/+25%,thankstomarketsharegaininallregions,strongdemandfromChina/emergingmarkets(EM),corporatereplacementcycleandcompletionofNECJVandMedionacquisition.2QsalesofUS$7.8bnarealsoaboveGSe/Reutersconsensusby9%/9%.OPMof2.1%cameinlinewithGSeandconsensusbutGPMof12.2%(whileaboveGSeof12%)wasdownfrom1Q’s12.5%onincreasingexposuretoconsumerbusiness(afterinclNECJV,andMedion)andmorelowmargindesktops(DT)soldinChina’stier4-6cities.LenovoalsoannouncedchairmanLiuwillretirefromtheboardtobesucceededbyCEOYangYuanqing.AnalysisLenovoreachedarecordhighmarketpositionduring2QFY12:1)itsurpassedHPas#1commercialNBvendorglobally,2)surpassedDellas#2inDTPCmarketand#3inconsumerPCmarket,and3)returnedtotop5inUSAandbecame#1inJPafterJVwithNECand#3inGermanyaftertheMedionacquisition.Strongbreakthroughsinmaturemarketsarereflectedinbothsalesandprofitability,andsalescontributionsurpassedChinaforthefirsttimewithdoubledprofitability,mainlydrivenbyM&Aandcontinuedcorporaterefreshcycles.WhileLenovohasalsoseenlargeHDDpricehikes,thecompanystateditwouldtrytoreducecostsfromothercomponentsandtoadjustitsstrategytobecomelessvolumedrivenintheDec-quarter.Wealsonoteits2Qsmartphone/tabletbusiness,whileshowinghighsalesgrowthfromalowbase,reportedaUS$27mnlossincludinginventorywrite-offforLePad,draggingdownChina’sOPmarginto4.3%in2Qfrom5.6%in1Q.For3QFY12,Lenovoexpectsto1)maintainOPMwithdecreasingOPEXratioonincreasingscale;and2)continuetooutpacemarketgrowthfromChina,EMandcorporaterefreshcycle.ImplicationsOurestimatesandtargetpriceareunderreviewpendingfurtherdetails.INVESTMENTLISTMEMBERSHIPAsiaPacificBuyListAsiaPacificConvictionBuyListCoverageView:[e-mail](Asia)L.L.C.GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACseetheendofthetext.Forotherimportantdisclosures,seetheDisclosureAppendix,orgoto(2)[e-mail](Asia)L.L.C.TheGoldmanSachsGroup,Inc.GlobalInvestmentResearchNovember2,2011LenovoGroup(0992.HK)HK$5.60GoldmanSachsGlobalInvestmentResearch2Exhibit1:Lenovo’sFY2Q12financialresultsSource:Companydata,Reutersconsensus,GoldmanSachsResearchestimates.2QFY122QFY121QFY122QFY11QoQYoYReuters(US$mn)ActualGSest.DifferenceActualActual(%)(%)ConsensusDifferenceRevenue7,7867,1548.8%5,9205,76031.5%35.2%7,1189.4%Grossprofits94886110.1%73859328.5%59.9%Operatingprofits1661519.9%12310735.0%55.3%1538.8%Pretaxearnings1651528.6%12310234.1%62.5%14712.3%Netearnings14412812.5%1097732.1%88.0%11524.9%Grossmargin12.2%12.0%12.5%10.3%Operatingmargin2.1%2.1%2.1%1.9%2.1%Netmargin1.8%1.8%1.8%1.3%1.6%November2,2011LenovoGroup(0992.HK)HK$5.60GoldmanSachsGlobalInvestmentResearch3RegACI,HenryKing,herebycertifythatalloftheviewsexpressedinthisreportaccuratelyreflectmypersonalviewsaboutthesubjectcompanyorcompaniesanditsortheirsecurities.Ialsocertifythatnopartofmycompensationwas,isorwillbe,directlyorindirectly,relatedtothespecificrecommendationsorviewsexpressedinthisreport.InvestmentProfileTheGoldmanSachsInvestmentProfileprovidesinvestmentcontextforasecuritybycomparingkeyattributesofthatsecuritytoitspeergroupandmarket.Thefourkeyattributesdepictedare:growth,returns,multipleandvolatility.Growth,returnsandmultipleareindexedbasedoncompositesofseveralmethodologiestodeterminethestockspercentilerankingwithintheregion'scoverageuniverse.Theprecisecalculationofeachmetricmayvarydependingonthefiscalyear,industryandregionbutthestandardapproachisasfollows:Growthisacompositeofnextyear'sestimateovercurrentyear'sestimate,e.g.EPS,EBITDA,Revenue.Returnisayearoneprospectiveaggregateofvariousreturnoncapitalmeasures,e.g.CROCI,ROACE,andROE.Multipleisacompositeofone-yearforwardvaluationratios,e.g.P/E,dividendyield,EV/FCF,EV/EBITDA,EV/DACF,Price/Book.Volatilityismeasuredastrailingtwelve-monthvolatilityadjustedfordividends.QuantumQuantumisGoldmanSachs'proprietarydatabaseprovidingaccesstodetailedfinancialstatementhistories,forecastsandratios.Itcanbeusedforin-depthanalysisofasinglecompany,ortomakecomparisonsbetweencompaniesindifferentsectorsandmarkets.GSSUSTAINGSSUSTAINisaglobalinvestmentstrategyaimedatlong-term,long-onlyperformancewithalowturnoverofideas.TheGSSUSTAINfocuslistincludesleadersouranalysisshowstobewellpositionedtodeliverlongtermoutperformancethroughsustainedcompetitiveadvantageandsuperiorreturnsoncapitalrelativetotheirglobalindustrypeers.Leadersareidentifiedbasedonquantifiableanalysisofthreeaspectsofcorporateperformance:cashreturnoncashinvested,industrypositioningandmanageme