Market Calls

PUBLISHED : Monday, 07 November, 2011, 12:00am
UPDATED : Monday, 07 November, 2011, 12:00am


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Computer maker Lenovo Group (992) released its second-quarter results on Wednesday, showing that its sales rose 35 per cent year on year and 31.5 per cent quarter on quarter. Net profit rose 33 per cent quarter on quarter, beating expectations.

The firm stands out as a computer maker that is thriving in an era of smartphones and tablets (although it has a foot in those sectors), and is overwhelmingly rated a buy by analysts.

Jiong Shao (Macquarie) says Lenovo has benefited from an expansion into tier-three and tier-four cities in China (generally classified as prefecture-level or county-level cities. Such cities account for about 35 per cent of the mainland market, says Shao, and are not reached by Lenovo's peers. Lenovo has partnered with smaller shops to penetrate this market, he says.

He adds that the firm is making progress in the tablet and smartphone market. The second version of the Lenovo tablet costs just 1,000 yuan (HK$1,220). It is the hottest-selling tablet on the mainland and it is the best-selling Android tablet in that market. It is also marketing a smartphone (called the A60) that is proving a hot seller.

'Revenue from mobile internet devices is just about 5 per cent of the total, but it's a big part of their growth plans,' Shao says of such products.

He also speaks approvingly of the decision by Lenovo chief executive Yang Yuanqing to buy about 8 per cent of the company's shares - an investment of about US$400 million - a few months ago. 'It's comforting and encouraging for investors to see management incentives tied to shareholder interests,' Shao says.

Steven Tseng (Samsung Securities) says Lenovo has thrived because of its access to the ever-growing mainland market and its strength in corporate computer sales. 'Lenovo has been our top pick for some time,' Tseng says.

The firm is still reaping benefits from its 2004 acquisition of IBM's personal computer business, when it acquired the ThinkPad line of notebooks. Lenovo absorbed the old IBM design team (based in Japan) in that acquisition, and the ThinkPad brand still fetches a premium among corporate clients, Tseng says.

The views stated here are those of analysts, and are not stock calls by the South China Morning Post