Lenovo's sales jumped 10% to US$8.79b

Will it keep its momentum?

According to Barclays Research, Lenovo reported strong 1Q FY14/2Q CY13 results this morning. Sales of US$8.79bn (+10% y/y and +12% q/q) are 3% higher than both Barclays' forecast and Bloomberg consensus.

Here's more:

GP margin of 13.6% (vs 13.1% a year ago and 13.4% a quarter ago) easily beat both our estimate of 12.0% and consensus of 12.2%. However, with higher-than-expected SG&A expense, OP margin of 2.3% (vs 2.3% a year ago and 2.2% a quarter ago) missed our forecast and consensus of 2.5%.

Due to a higher investment income, pretax income of US$215mn was 2% higher than our forecast and in line with the consensus estimate. Net profits of US$174mn are 6% above our forecast of US$164mn and consensus of US$165mn.

Revenue from America grew the strongest at 29% y/y, EMEA revenue grew 18% y/y, revenue from China grew 6% y/y, but revenue from Asia declined 9% y/y.

Profit from EMEA saw a big jump and increased 65% y/y, profit from China also grew 20% y/y. MIDH sales accounted for 14% of total sales (vs 9% a quarter ago). NBs and DTs together accounted for 80% of sales, down from 83% a quarter ago and 86% a year ago.

While Lenovo does not give official guidance, we expect it to continue to grow sales y/y, even amidst a slow global PC demand environment, with margins expected to improve y/y because of better PC and smartphone profitability. We look for margins to continue improving y/y for the next several quarters.

We expect enterprise products, such as server and storage, to be the next driver after smartphone and tablets. For FY14, we look for the top line to grow at 10%, and EPS to grow at 20%.