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Lenovo may have all the credentials, but it's no walkover

Updated: 2017-01-17 07:57

(HK Edition)

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Lenovo - one of the worst performing stocks on the Hong Kong bourse - is now being talked about by stock analysts as possibly one of the best bargains.

But, nobody is getting overly excited over the company's computer business although it continues to produce some of the most desirable products. Computer sales worldwide have been flat and are expected to remain so in the foreseeable future. Lenovo is the world's largest computer producer.

The renewed interest in the mainland electronics giant is focused on its other businesses, mainly mobile phones. Lenovo made a bid to compete with other mainland phone makers by acquiring one of the oldest names in the business - Motorola of the US - from Google in 2014. Since then, it has produced a line of products that are seen to have helped reverse its flagging fortunes.

Lenovo recorded income of $157 million for the second fiscal quarter ended Sept 30, 2016, in contrast to a loss of $714 million for the previous year. Analysts predict that the company's earnings for the whole of the fiscal year ending March 31, 2017 will reach $600 million - the first time in six years - compared to a net loss of $128 million a year before.

Lenovo's share price had fallen to below HK$5 in recent weeks from a high of above HK$14 early last year. It fell again on Monday in line with the market's weak performance.

Lenovo has attributed the earnings setback to charges for the restructuring of its phone business, which was expected to begin making a profit in fiscal 2017. The company maintained a dividend payout of 26.5 Hong Kong cents for fiscal 2016 despite the loss. Analysts expect the group's total dividend payout to be even higher in a profitable fiscal 2017.

But, buying Lenovo at this time is not without potential risks. The mainland's mobile-phone market is extremely competitive. Apple and Samsung have a stranglehold on the top end of the market. The lower-end segment, where Lenovo will compete, is dominated by at least three major players - Huawei, Oppo and Xiaomi. Lenovo will have to try a lot harder to grab a bigger market share from its established rivals.

Some analysts believe Lenovo is capable of succeeding, and predict that its share price will surge to around the 2015 level of HK$8 in coming months. That would mean a rise of more than 50 percent.

 Lenovo may have all the credentials, but it's no walkover

Lenovo smartphones are displayed at the company's booth at the Mobile World Congress in Shanghai. The world's largest computer producer is focusing on its other businesses, mainly mobile phones, and competing with other mainland phone makers. Qilai Shen / Bloomberg

(HK Edition 01/17/2017 page1)

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