S&P Global Ratings (S&P) has upgraded the long-term issuer and issue credit ratings on Lenovo (HKSE: 992) (ADR: LNVGY) to ‘BBB’ with a stable outlook, reaffirming the effectiveness of the company’s intelligent transformation strategy.
According to the S&P report, Lenovo’s credit rating upgrade demonstrates the company’s “improved operational resiliency, with solid profitability and cash flow despite declines in PC revenue”.
“Lenovo’s growing service and solutions revenue and good working capital management will contribute to steadier cash flow,” according to S&P. The credit agency is seeing a stable outlook for the company, with revenue expected to grow over the next 24 months from a gradual PC market recovery and a steady increase in non-PC and services revenues. S&P highlights the success Lenovo has had in growing revenue from services, noting that the higher margins, upfront cash payments, and recurring nature of this part of the business have contributed to the improvement of Lenovo’s overall profitability and cash flow in a weaker macroeconomic environment.
“The strong upgraded rating reaffirms the effectiveness of our transformation strategy and diversified growth engines,” said Hugh Wu, Corporate Treasurer, Vice President of Lenovo. “We are committed to continuing to drive innovation and intelligent transformation, to achieve long-term sustainable growth and profitability.”
The upgrade came after the company’s recent FY2023/24 Q1 earnings announcement which reported strong growth of its services-led business, as well a commitment to investing a further US$1 billion in AI innovation over the next three years.