Lenovo Group returns to A-shares! Aiming at the Science and Technology Innovation Board, plans to raise 10 billion yuan, and the stock price soars

Lenovo's Hong Kong-listed stock price-to-earnings ratio is less than 18, while the median price-to-earnings ratio of companies listed on the Science and Technology Innovation Board is about 55.
 

Lenovo, a veteran IT giant, is also going to sprint to the Science and Technology Innovation Board!

On the evening of January 12, Lenovo Group (HKSE: 992) (ADR: LNVGY) submitted an announcement to the Hong Kong Stock Exchange, announcing that the company's board of directors has approved the possible issuance of Chinese Depositary Receipts (CDRs) and applied to the Shanghai Stock Exchange Science and Technology Innovation Board for a preliminary proposal for the listing and trading of CDRs.

This means that after more than 20 years of listing on the Hong Kong stock market, Lenovo Group is about to list on the A-share market.

Leifeng.com noted that after the above announcement, Lenovo's ADR rose by more than 10% in the US capital market, while Lenovo's Hong Kong stock price rose sharply after opening on January 13, with the increase once exceeding 16%.

1. Raise RMB 10 billion and submit application after shareholders' meeting

Why does Lenovo Group, which has been listed in Hong Kong for many years, want to return to the A-share market?

Lenovo Group Chairman and CEO Yang Yuanqing said:

We believe that the plan to return to the A-share market announced today will help strengthen the close connection between the company's strategy and the booming domestic capital market, enhance the convenience for mainland investors to invest in Lenovo, and thus further unleash Lenovo's value, allowing us to invest more in technological innovation, service transformation and intelligent change, and better promote the digital and intelligent transformation and upgrading of all industries.

Yang Yuanqing said that with its core competitive advantages in operational excellence, global resources, and local delivery, Lenovo will firmly grasp the development opportunities of digital and intelligent transformation and create long-term sustainable returns for society and shareholders.

It can be seen that Lenovo's return to the A-share market is, to some extent, due to its appreciation of the booming domestic capital market and the market opportunities brought about by the establishment of the Science and Technology Innovation Board, thereby enhancing Lenovo's value.

Based on the proposal approved by Lenovo's board of directors, Lenovo Group plans to issue new common shares, accounting for no more than 10% of the company's total issued common shares after expansion. The funds raised will be used for the research and development of technologies, products and solutions, strategic investments in related industries, and to supplement the company's operating capital.

It is understood that Lenovo Group has previously issued approximately 12.042 billion common shares; in the above proposal, Lenovo Group will seek special authorization from its shareholders to issue up to 1.338 billion common shares, accounting for 10% of the total issued shares of the company after expansion.

However, Lenovo Group also emphasized that the above-mentioned overall proposals for issuing CDRs and listing on the Science and Technology Innovation Board are subject to market conditions, shareholder approval and the necessary approvals from relevant stock exchanges and regulatory authorities (China Securities Regulatory Commission, Shanghai Stock Exchange and Hong Kong Stock Exchange).

It is understood that Lenovo has preliminarily decided to choose CICC as the sponsor of the CDR project, and the price will refer to the market issuance price at that time; based on the current price, the financing amount is expected to be around 10 billion yuan; Lenovo will submit an application after the shareholders' meeting in February, and the specific listing time will depend on the approval of Chinese regulatory authorities.

Once approved, Lenovo Group will be listed simultaneously on the Hong Kong Stock Exchange, the Shanghai Stock Exchange Science and Technology Innovation Board and the US OTC (over-the-counter market).

2. PC business remains the fundamentals, and software and services continue to grow

Lenovo's plan to list on the Science and Technology Innovation Board is quite eye-catching.

In fact, as early as February 1994, Lenovo was successfully listed on the main board of the Hong Kong Stock Exchange Limited (stock code: 992), and in March 1995, it issued first-level depositary receipts in the United States (stock code: LNVGY), each depositary receipt equivalent to 20 Lenovo common shares.

As of March 31, 2019, Lenovo Group had issued a total of 1,201,479,1614 common shares.

In terms of size, Lenovo is a Fortune 500 company with annual revenue of US$50 billion, 63,000 employees, and operations in 180 markets around the world. In terms of business, Lenovo currently has two core business groups:

Intelligent Devices Group (IDG), which consists of the PC and Smart Devices Group (PCSD) — including PCs, tablets, augmented and virtual reality (AR/VR), smart devices, and the mobile business focused on smartphones;

Data Center Business Group (DCG), including servers, storage, networks, software and services.

In addition, Lenovo has three new business units: Data Intelligence Business Group (DIBG), Cloud Network Convergence Business Unit (CNBU) and Commercial Internet of Things Business Unit (CIoT) - in addition, Lenovo also has a dedicated venture capital business.

However, according to Lenovo's interim financial report for fiscal year 2021 ending September 30, 2020, of its total revenue of US$27.867 billion (a year-on-year increase of 7.0%), Lenovo's Intelligent Devices Business Group's revenue was US$24.776 billion, of which personal computer and smart device revenue reached US$22.065 billion, accounting for 79.18%.

At the same time, the Data Center Business Group's revenue was US$3.091 billion, a year-on-year increase of 15%; among them, the smart Internet of Things business increased by 36% year-on-year, the smart infrastructure business increased by 21% year-on-year, the industry intelligence-related business increased by 72%, and the software and service business revenue reached 8.5 billion yuan, a year-on-year increase of 39%.

At the strategic level, Lenovo stated that it is committed to becoming a leader and enabler of intelligent transformation. In 2019, it proposed the 3S strategy, including "intelligent infrastructure", "industry intelligence" and "intelligent Internet of Things", hoping to provide more intelligent technology for everyone.

3. Why the Science and Technology Innovation Board? Why now?

As a veteran IT giant, why did Lenovo choose to list on the Science and Technology Innovation Board at this moment?

Leifeng.com learned that throughout 2020, affected by the epidemic, Lenovo's stock price experienced a V-shaped decline and rebound process - especially as one of the world's largest PC manufacturers, its stock price changes are closely related to the PC market.

In February last year, Bucephalus Research, a well-known international short-selling organization, publicly stated that Lenovo deliberately falsified its operating data and financial status to the outside world, causing Lenovo's stock price to fall to HK$3.64 at one point.

However, as the epidemic continued to break out, the demand for remote work, online education, etc. continued to increase, causing the PC market to begin to pick up and continue to grow. Lenovo's stock price also slowly climbed against this background. By the last day of 2020, it had risen to HK$7.32, doubling its lowest point.

Entering 2021, Lenovo's stock price continued to rise during adjustments and ushered in major good news. 

Leifeng.com noted that on January 12, IDC released the global personal computer market rankings for the fourth quarter of 2020. Among them, Lenovo accounted for 25.4%, with a year-on-year growth rate of 29% - industry insiders said that this growth rate benefited from the strong demand for users to work from home and learn remotely during the epidemic.

Following this good news, Lenovo's stock price surged by 8.93% on January 12, reaching HK$8.05, and Lenovo's market value also rose to HK$96.9 billion.

It is worth mentioning that on January 12, Credit Suisse released a research report, raising Lenovo Group's (00992) target price by 84.6% from HK$5.2 to HK$9.6, and its rating from "neutral" to "outperform" - the report pointed out that based on its channel survey and feedback from the meeting, it believes that the development momentum of personal computers will be better and will record growth this year.

From this perspective, Lenovo's announcement of its return to the Science and Technology Innovation Board at this point in time seems to be a case of striking while the iron is hot.

A senior observer told Leifeng.com that Lenovo has been undervalued due to its brand, but it is not particularly seriously undervalued. Lenovo has also been seeking transformation in recent years, trying to get rid of the "trade, industry and technology" route. Its 3S strategy is also gradually being implemented, and it has also made some chip investment projects, which is a promising direction.

Leifeng.com noted that Lenovo's current P/E ratio of Hong Kong stocks is less than 18; and among the Science and Technology Innovation Board that Lenovo is preparing to list, most companies have relatively high P/E ratios, and all exceed Lenovo Group's current P/E ratio - one eye-catching data is that the median P/E ratio of companies listed on the Science and Technology Innovation Board is currently about 55.

It can be seen from this that Lenovo’s plan to list on the Science and Technology Innovation Board also has the important consideration of taking this opportunity to enhance its own capital market value.

It is noteworthy that the capital market has already given feedback on Lenovo's plan to list on the Science and Technology Innovation Board. After the Hong Kong stock market closed on January 13, Lenovo's share price increased by 9.69% to HK$8.83, and its Hong Kong stock market value also exceeded HK$100 billion.