Lenovo Group: 6-month target price of 1.3 yuan sell

State-Hao Capital events: Lenovo will publish its 09 annual results in Thursday. Lenovo is expected to announce its results for the full year ending March 31, 2009 after the close of this week's four, which estimates the company's 4th-quarter loss of $180 million and a loss of $143 million a year.　　The big losses in the 4th quarter came mainly from a restructuring fee of $150 million to ease 2010 earnings, and Lenovo said in January this year that the restructuring would save 300 million of billions of dollars in the company's 2010 budget. Lenovo's share price rose 59% in the last two months, mainly because investors hope that the global economic recovery and China's PC subsidy program will help stimulate Lenovo's sales, however, the bank believes that at this stage the company's business has bottomed out and started a sustained recovery is still premature, based on: 1　　Recent sales have been strong only because of the replenishment of inventories rather than recovery of demand, so it may not be sustainable, with about 70% per cent of the company's sales coming from the corporate computer business, which has continued to be weak and not showing signs of recovery.　　2. The company's continued focus on the development of a highly-developed notebook computer market is conducive to sales rather than profitability, as the average product price and profit margins are low and competition is fierce.　　3 The country gives 13% of rural personal computer subsidies to Lenovo's sales in the long run, because the company's leadership in the Chinese market and PC penetration is still low, but given the low education level of farmers and the popularity of computers, we believe that the extent of subsidies to stimulate sales is limited. 4. While Lenovo had the opportunity to turn its deficit to profit in 2010, it was only because of the massive restructuring that cost a significant drop rather than from rising demand for sales growth and product mix improvement.　　Company operating efficiency is low, the ratio of operating cost relative sales is high, reflecting its operating profit rate will maintain 0-0.5% low level in 2010.　　5 The global PC market is not only experiencing cyclical declines but is facing a structural shift to a low-end, lower average selling price, so profitability will remain weak unless Lenovo restructures further.　　The only advantage of the company is its generous net cash (about $1.1 per share at the end of the 3rd quarter), which helps to support share prices. We believe that Lenovo's valuation is expensive, the current price is equal to 2.65 times times the market rate, while the 2010 profit is insignificant, the price-earnings ratio is unreasonably high. The bank will review earnings forecasts and target prices after the results are released. Reiterate the selling rating.