1~3Q15 results in line with our estimatesOver 1~3Q15 revenue increased ~15% YoY to Rmb221bn andadjusted net profits rose +37% YoY to Rmb3bn.
Trends to watchWatch out for the bottom line as the result is based on ChinaAccounting Standards not IFRS; the main differences wereRmb437mn of dilution gains from Lakala and ~Rmb1.2bn of fairvalue gains from property; we thus expect 1~3Q15 net profitattributable to shareholders to be Rmb3bn under IFRS.
Lenovo’s margins still face headwinds; EnterpriseBusiness expanding rapidly. We believe Xiaomi’s entry intothe PC market is a big threat to Lenovo PC margins in China.
Lenovo’s smartphone business is also still facing fiercecompetition. We favor Lenovo’s strong growth in the EnterpriseBusiness sector.
CAR’s earnings were revised down due to slowerexpansion of UCAR. As a result, CICC’s TP for CAR was cut~20% from HK$24.33 to HK$19.4; but we still expect CAR tohave a strong growth in 2016e (bottom line to grow ~50% YoY).
Earnings forecastIn 2015/16e, we expect revenue to be Rmb317bn/328bn and netprofit of Rmb2.9bn/6.1bn, implying EPS of Rmb1.23/2.57(or HK$1.49/3.09).
Valuation and recommendationWe reaffirm our HOLD rating. Due to the changes in Lenovo’sequity interest (from 30.55% to 31%) and CICC’s TP of CAR, wetrim Legend’s TP by 2.7% from HK$37 to HK$36, basedon our SOTP NAV calculation .
RisksFailure to invest in valuable projects; soft economic growth.