Source: Reprinted from WeChat public account Wang Yayuan Hong Kong Stock Circle Author: Vulture Investment
Honghe Renai (03869.HK), controlled by Hony Investment, was listed in Hong Kong today, obtained , and Mr. Liu Chuanzhi personally stood on the stage and rang the bell. Speaking of Liu Chuanzhi, everyone is familiar with it. It was this IT godfather who created the Lenovo Empire.
After years of development, after Lenovo successively acquired IBMX86 server and MOTO mobile phone business, Lenovo entered a period of integration for more than two years.
For Lenovo, the R&D investment in the past decade is not as high as that of Huawei for one year. This continuous low R&D investment has resulted in: the overall PC industry is now severely declining, the mobile phone business has stopped, and the notebook business has also been impacted.
Can Lenovo bring us new imagination? Today, please ask Vulture Investment to talk to me about the logic of investing in Lenovo Group .
htmlAt noon on January 16, Lenovo Group announced its third-quarter results for the fiscal year 2016/17, and its stock price fell sharply. In the third quarter, the company's revenue was US$12.169 billion, a year-on-year decrease of 6%, and after deducting exchange rate factors, a year-on-year decrease of 4%; net profit was US$98 million, a year-on-year decrease of 67%.Lenovo's business segment
According to the company's division, Lenovo Group mainly engages in three major business segments: personal computer and smart devices, mobile services, and data center services.
Take the third quarter report just released as an example. The revenue of the personal computer and smart device business increased by 2% year-on-year to US$8.598 billion, accounting for about 70% of the group's overall revenue, and the pre-tax profit rose by 7% to US$431 million, with a profit margin of 5.0%, which is the company's main source of revenue and profit.
Although globally, the computer sales market fell 2% year-on-year, Lenovo Group increased by 2% year-on-year to 15.7 million units. As of the third quarter, Lenovo's global personal computer market share rose by 0.8 percentage points year-on-year to 22.4%, maintaining its champion position in the global personal computer market for three consecutive years.
Lenovo Group regards this part of its business as a cash cow and makes as much profit as possible. This part of the business is also the main reason why we pay attention to this company.
Take the first half of 2016 as an example. Global laptop sales fell by 4%, to 74.18 million units. Lenovo shipped a total of 16.15 million units in the first half of the year, accounting for 21.8% of the market share, an increase of 4.1% year-on-year. The second place is HP , accounting for 20.4% of the market share, an increase of 1.6%. The third place is Dell , with 15.3% market share and sales volume increased by 11.1%. Asus ranked fourth with a market share of 10.9%, a year-on-year increase of 1.5%.
In addition to the top four, the fifth to eighth brands ranked fifth to eighth, including Apple, Acer , Samsung and Toshiba, all sales have declined, with market shares of 7.9%, 7.7%, 2.0%, and 1.8%, respectively. The trend of the market concentration towards the top few is still relatively obvious.
Of course, this part of the cash bull business is attributed to a successful acquisition that year, namely the acquisition of IBM personal computer business at a price of 1.25 billion US dollars. Businesses are like people. For people holding hammers in their hands, everything will be nails. You can buy a computer, why not?
Lenovo's mobile business
In 2014, Lenovo Group completed two largest global transactions in its history. One of them was the acquisition of Motorola's mobile business from Google for US$2.9 billion. This part of the business was a business that Google spent several years to rebuild but had little effect. Google gave Lenovo to Lenovo. Lenovo hopes to repeat the superb skills of returning to life when acquiring IBM's personal computer that year, which also constitutes the second business of Lenovo Group (plus the original mobile phone business), namely the mobile business.
But in the third quarter results announcement just released, it can be seen that Lenovo's mobile business's revenue fell 23% year-on-year to US$2.185 billion, and the mobile business accounted for about 18% of the group's overall revenue. Excluding non-cash expenses related to mergers and acquisitions derived from accounting treatment, the pre-tax operating loss of the mobile business during the review period was US$112 million, and the pre-tax operating profit rate was -5.1%.If you lose so much in one quarter, how much can you lose in a year?
This part of the business is also the most troublesome part of the entire Lenovo Group. From the current perspective, the frog is still a frog, and Lenovo Kiss has not turned the frog into a prince.
The mobile phones presented by Lenovo store will make you feel that they are using their phones from three years ago to fool people. You will be surprised that in today's red sea of mobile phones, people are selling such mobile phones. It is said that they bought them well in Europe, , Middle East, , Africa, Latin America.
In the third quarter, Lenovo Group's smartphone sales fell 26% year-on-year. In order to reverse the decline, from Liu Jun to Chen Xudong, to Qiao Jian , and recently, the former Samsung Electronics senior executive Jiang Zhen , they frequently replaced executives, but so far, these well-known executives have basically failed one after another, and the only thing that remains unchanged is their deteriorating performance. Although it is too early to draw conclusions now, my personal brief observation of this industry is that in the current mobile phone market where competition in China is so fierce, Lenovo Mobile has not many opportunities to turn around.
Lenovo's second acquisition in 2014 was to acquire SystemX server business, namely the data center business from IBM for US$2.3 billion. Due to limited capabilities, I know very little about this part of the business, only one thing I know: the competition in this part of the business is also very fierce, and there are many giants in China fighting. Lenovo's revenue in the third quarter decreased by 20% year-on-year to US$1.05 billion, accounting for about 9% of the group's overall revenue. If the non-cash expenses derived from accounting treatment related to mergers and acquisitions are excluded, the operating loss before tax is recorded at US$94 million, and the operating profit rate before tax is negative 8.9%. Like the mobile business, it is in a decline in revenue and operating losses.
Focus of attention
You can see that Lenovo’s three businesses are “transforming” except for personal computers. Of course, we also know that another meaning of transformation is “has failed at the moment.” So, is there anything worth paying attention to for such a company?
has a number, that is, the market value of Lenovo Group closed today: HK$54.2 billion.
Not long after the acquisition was completed in May 2015, Lenovo Group's stock price has fallen from the highest 14.3 yuan to 4.89 yuan in just over a year, and currently has a market value of only 54.2 billion yuan. But in the past three quarters, the personal computer and smart device business alone contributed US$430 million in pre-tax profits. In the first half of 2016, this part of the business contributed US$775 million. If a year is generated, if the world still needs to buy personal computers (I don’t know if this assumption is true), and if Lenovo can also maintain its market share in the personal computer field (the market share is increasing), then how much is this part of the business alone?
Even if we assume that Lenovo Group acquired two businesses (including the original mobile business) for more than 6 billion US dollars: the mobile phone business with an annual revenue of nearly 10 billion US dollars and the data center business with an annual revenue of nearly 5 billion US dollars have become worthless due to losses. In this case, what is the reasonable valuation of Lenovo Group?
Is there still room for Lenovo Group’s stock price? Is
valuation reasonable?
plus these two parts of the business and the increased liabilities considered due to the acquisition. How much valuation should such a company with an annual income of nearly US$50 billion be given? Is the market value of just over 50 billion Hong Kong dollars reasonable? What enlightenment can Lenovo’s success or failure bring us?
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