Lenovo Group Ltd. ADS (LNVGY) reports preliminary financial results for the quarter ended 2012-06-30.
Lenovo Group Limited (PINK:LNVGY) ADS recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Lenovo Group Ltd. ADS’s analysis versus peers uses the following peer-set: Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), Quanta Computer Inc. (TPE:2382), Fujitsu Limited (PINK:FJTSY), Foxconn Technology Co., Ltd. (TPE:2354) and Compal Electronics Inc Gdr 144A (TPE:2324). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2012-06-30||2012-03-31||2011-12-31||2011-09-30||2011-06-30|
|Revenue Growth %||6.8||(10.4)||7.8||31.4||21.5|
|Net Income Growth %||111.4||(56.4)||6.9||32.1||158.6|
|Net Margin %||1.8||0.9||1.8||1.8||1.8|
|ROE % (Annualized)||23.6||11.3||26.5||27.2||22.9|
|ROA % (Annualized)||3.6||1.7||3.8||4.0||3.8|
Lenovo Group Ltd. ADS currently trades at a higher Price/Book ratio (3.8) than its peer median (2.5). LNVGY-US achieved a better operating performance than the median of its chosen peers (ROE of 23.0% compared to the peer median ROE of 15.8%) and the market still expects faster growth from it than from those peers (PE of 18.6 compared to peer median of 12.4).
The company’s median net profit margins of 1.6% and relative asset efficiency (asset turns of 2.3x compared to peer median of 1.5x) give it some operating leverage. LNVGY-US’s net margin is greater than (but within one standard deviation of) its five-year average net margin of 1.0%.
The company enjoys both better than peer median annual revenue growth of 37.0% and better than peer median earnings growth performance 73.2%. LNVGY-US currently converts every 1% of change in annual revenue into 2.0% of change in annual reported earnings. We view this company as a leader among its peers.
LNVGY-US’s current return on assets is around the same as its peer median (3.6% vs. peer median 3.6%). This recent performance contrasts with its less than peer median return on assets over the past five years (2.5% vs. peer median 6.7%) suggesting that the company’s relative operating performance is improving.
The company’s comparatively low gross margin of 12.2% versus peer median of 18.6% suggests that it has a non-differentiated strategy or is in a pricing constrained position. In addition, LNVGY-US’s bottom-line operating performance is below peer median (pre-tax margins of 2.0% compared to peer median 2.6%) suggesting relatively high operating costs.
Growth & Investment Strategy
LNVGY-US has grown its revenues faster than its peers (25.7% vs. 6.6% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 18.6. Overall, we classify the company’s growth prospects as superior relative to its peers.
LNVGY-US’s annualized rate of change in capital of 3.1% over the past three years is less than its peer median of 9.4%. This investment has generated a peer median return on capital of 13.2% averaged over the same three years. The median return on capital investment on a relatively lower investment suggests that the company is under investing.
LNVGY-US’s reported net income margin for the last twelve months is around the peer median (1.6% vs. peer median of 1.9%). However, the company has also recorded a relatively low level of accruals (0.7% vs. peer median of 3.7%) which suggests possible overstatement of its reported net income.
LNVGY-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.