On March 28, Lenovo Holdings announced its results. The company's revenue fell 10% year on year, net profit fell by more than 90%, net profit to mother recorded a loss, and dividends were cancelled. Faced with this kind of performance, investors may feel that there is insufficient confidence in investing in Lenovo Holdings. Other investors may feel that the time has come to bottom out. Whether it is extremely easy or not, the market often hides many potential trading opportunities. To make the right judgment, you must analyze the core reasons and concerns for holding Lenovo Holdings, as well as possible future trends.

What are the reasons for investors to go long with Lenovo Holdings?

1) It is probably the most cost-effective and veritable A in the worldIConcept stocks

Lenovo Holdings should be said to be globalThe most cost-effectiveIt's an AI concept stock. The reason he has an AI concept is because he has two major AI-related businesses. One is Lenovo Group's AI PC (number one in the world) +AI server (third in the world), and the other is a 200+ AI investment company that invests in the business, spanning all aspects of AI, forming a unique AI full-stack layout in the world. For Lenovo Holdings, the impact of AI on business is reflected not only in the form of revenue and operating profit growth, but also through profits from equity appreciation. It can be said that it has everything from underlying technology to commercial applications. It is an AI business structure that combines product services and investment layout, and takes into account both short-term and long-term interests. Even when calculated using conservative PB valuation methods, Lenovo Holdings' valuation is only 0.2 times PB, which is probably the most underrated AI concept stock in the world.

2) Equivalent to buying Lenovo Group at a discount

The current market value of Lenovo Group is about HK$110 billion, and the value belonging to Lenovo Holdings is about HK$35 billion — however, the market value of Lenovo Holdings is only HK$14 billion! All other assets are not counted. Buying Lenovo Holdings is equivalent to holding Lenovo Group shares at 40% off by holding Lenovo Holdings. This may be a good arbitrage opportunity. Because the biggest impact on Lenovo Holdings' performance is the Lenovo Group and investment business, if you have a bold idea, buying Lenovo Holdings first and then shorting other stocks engaged in the investment business is actually equivalent to holding Lenovo Group shares at a discounted price, constructing an arbitrage logic of holding Lenovo Holdings to indirectly hold the Lenovo Group at a low price.

3) Unique ability to invest financially

Lenovo Holdings' investment business began in 2001. It is one of the earliest venture capital funds in China. It has a development history of more than 20 years and managed assets of more than 160 billion dollars. It has driven more than 150 listed companies, and all indicators rank among the top of the Chinese venture capital industry. Among A-shares and Hong Kong stocks, there are almost no primary market investments such as Lenovo Holdings to achieve such large-scale targets. Although Lenovo Holdings' investment business lost a lot in '23, the reason they promoted the listing of many projects proved their strength in terms of investment. In the past 5 years, Lenovo Holdings has promoted more than 80 companies to enter the capital market. In 23, the capital market also experienced a sharp decline and limited IPOs and holdings reduction, so it is normal to record large losses.

2020

2021

2022

2023

4) Valuation levels far below intrinsic value

Exactly how much is the intrinsic value of Lenovo Holdings. If you only look at his current second-level market holdings, then Lenovo Group+Lianhong Xinke+Jiawo Foods+China Eastern Airlines Logistics+Fuhanwei is worth about 60 billion yuan. The financial investment is simply estimated at about 25 billion yuan, and considering that the financial business is mainly dominated by the International Bank of Luxembourg, it is also at least 20 billion yuan. This simple addition reveals that its shareholding value exceeds RMB 100 billion, compared to the current HK$14 billion Market capitalization simply That's the price of a broken bone.

What are the market's concerns?

1) The investment business is affected by the capital market and the performance is difficult to predict

As mentioned before, Lenovo Holdings' investment profit is closely related to the capital market, and it has a great impact on the company's performance. If disassembled, it has a triple impact: 1. The number of listed companies and the place of listing, which is directly related to the magnitude of value addition. Overall, A-shares are the best listed, followed by US stocks, and finally Hong Kong stocks. The Hong Kong stock listing is estimated to be less profitable in the past two years; 2. Fluctuations in the capital market are measured at fair value, so changes in the capital market will have a direct impact on the company's profits. 3. The pace of exit is actually true. Gold and silver are safe when falling into the bag Once the market is bad, volume and price drops sharply or holdings reduction is limited (23 was the same time), then investment returns will definitely drop drastically. The triple impact of 2023 occurred simultaneously, causing the company's performance to plummet. The uncertainty of financial investment is reflected here, making it difficult to predict Lenovo Holdings' performance.

2) The company's asset disposal plan is uncertain

In the past, Lenovo Holdings expanded its business quite widely. Over the years, it has been optimizing the previous layout. In 2020, the company handled various assets such as Shenzhou Car Rental and Suzhou Trust in one go. Since then, the pace of disposal has slowed somewhat. China Eastern Airlines Logistics and La Cala shares have continued to reduce their holdings. After restrictions on holdings reduction in 2023, these holdings reductions were also suspended. According to the perspective that Lenovo Holdings should focus on industrial operation and technological innovation in the future, in the current system, in addition to the three self-made assets of Lenovo Group, Lianhong Xinke, and the investment business, all other assets may be disposed of, and these disposal may result in one-time profits or one-time losses, which are unpredictable. Among them, the current situation of Jiawo Foods seems to be dragging down Lenovo Holdings quite a bit. It is recommended that the company's management dispose of these assets as soon as possible.

3) The overall performance of the integrated enterprise sector is poor

Over the years, the sector where diversified business companies such as Lenovo Holdings are located has not performed well. Examples include Fosun International, CITIC, Everbright Holdings, and even the established Hong Kong company Changhe and Pacific shares. The valuation level is around 0.2-0.3 times PB. The overall performance of the sector is poor. This is also an important reason for investors to remain cautious.

4) Changes in dividends

Lenovo Holdings has been a good student of dividends in the past. Since its listing, dividends have maintained a good level of growth. However, starting in 2022, due to a sharp decline in performance, the company's dividend level declined until 2023, when dividends were suspended due to losses. If you analyze them, they are actually all reasonable decisions. In 2022, the results fell 80% and dividends fell by 50%, but the dividend rate still reached 40%. If you just look at the dividend rate, it's a very high level. However, the suspension of dividends in '23 was also unexpected, because loss-making companies in Hong Kong stocks still paid less than 10% of their dividends in '23, and the vast majority of loss-making companies stopped paying dividends. It can be said that suspending dividends is basically a market consensus. Considering that the largest shareholder of Lenovo Holdings is state-owned, state-owned assets generally require dividends, so once Lenovo Holdings' performance recovers, the level of dividends will follow with the recovery if there are no surprises.

Taken together, the core reason for investing in Lenovo Holdings has a lot of room for imagination, and the concerns are basically reflected in current performance and stock prices. If you look at it at this point, there areSome positive elements are brewing：

1) The recovery of capital markets

Before the Spring Festival, the A-share market fell rapidly, and experienced a rapid rebound after the Spring Festival. Currently, it is in the consolidation stage. At the same time, indices such as the Science and Innovation 50 have also emerged from a technical bull market. Therefore, investors are becoming more optimistic about the future capital market, which will help Lenovo Holdings' investment business to recover for the better.

2) Gradual implementation of AI initiatives

Lenovo Holdings' deep AI accumulation is obvious to all. How to use its AI advantages to adapt to the AI era is a question that Lenovo Holdings needs to think about. Recently, Lenovo Holdings signed a strategic cooperation with Smart Spectrum AI, the largest model company with the most open AI temperament in China, to jointly develop applications and vertical models. This should be considered an important step in starting to develop its AI advantages. Incidentally, Intelligent Spectrum AI is a major AI model enterprise that Lenovo Holdings continuously invests and increases.

3) Lenovo Group is about to release epoch-making AI PC, Lianhong Xinke's performance is also expected to reverse

Lenovo Group announced that it will release the world's first AI PC with five major characteristics at the Tech World Conference in April. This will be the world's first computer with real AI software and hardware capabilities. It is of great significance to the industry, and may also trigger a major wave of switching. In addition, the price of EVA photovoltaic film materials, the main business of Lianhong Xinke, has also bottomed out. At the same time, several major projects will be delivered in the first half of '24, and larger projects will be delivered in '25, so the performance of Lenovo Holdings' industrial operation sector is expected to reverse upward.

In summary, the current core factor of going long with Lenovo Holdings has a lot of room for improvement; after a long period of digestion, the risk of concern has been reflected in current performance and stock prices. Looking forward to the future, the three core businesses, Lenovo Group+Lianhong Xinke+ Investment are all expected to enter an upward trajectory in 24. The AI concept is also gradually being implemented, and the certainty of going long is increasing. Furthermore, the company's stock price has already withstood a wave of correction after the announcement. Don't forget the old adage: “every advantage is good”.