Wednesday, November 6th, 2024

Xiaomi Stock Soars: Smartphone Giant’s EV Ambitions and Market Share Gains Fuel Optimistic Outlook






Xiaomi Corp Equity Research: An In-Depth Analysis

Xiaomi Corp Equity Research: An In-Depth Analysis

Broker: OCBC Investment Research

Date: 5 November 2024

Encouraging Growth Outlook

Global smartphone shipments grew 5% year-on-year (YoY) in 3Q24, with Xiaomi retaining its third place in the global smartphone market and advancing to fourth place in China. The company’s ecosystem strategy, “Human x Car x Home,” has been instrumental in attracting a wider and more stable consumer base.

Investment Thesis

Xiaomi is a technology product and services company founded in 2010, primarily focusing on smartphones, Internet of Things (IoT) products, and related internet services. The company has expanded its market reach beyond China, becoming the smartphone market leader in India and gaining market share in Europe. According to Canalys, Xiaomi ranked among the top three in the global smartphone market in terms of shipments. The company combines affordably priced, high-quality smartphones with a smart IoT hardware product ecosystem and Internet services-based monetisation. Strong cash flow should support Xiaomi’s foray into the electric vehicle (EV) market. However, the company might face challenges due to overall macroeconomic weakness and stiffer competition.

Investment Summary

Global smartphone shipments saw a fourth consecutive quarter of growth, with an increase of 5% YoY in 3Q24, reaching 309.9 million units. This growth marked the strongest 3Q performance since 2021, driven by aggressive product launches with strong value propositions. Demand remained steady in emerging markets, with early signs of a replacement cycle in North America, China, and Europe. Xiaomi retained third place with 42.8 million units shipped and a 14% market share in 3Q24, benefiting from strategic inventory positioning for new releases in key markets.

Financial Summary

Metric FY23 FY24E FY25E
Revenue 270,970 345,337 393,353
Gross profit 57,476 73,851 84,758
Operating profit 20,009 19,353 23,849
Net profit (adj) 19,273 23,402 25,037
Earnings per share (CNY adj) 0.76 0.94 1.00

Key Ratios

Metric FY23 FY24E FY25E
Revenue growth -3.2% 27.4% 13.9%
Gross margin 21.2% 21.4% 21.5%
Operating margin 7.4% 5.6% 6.1%
Net margin (adj) 7.1% 6.8% 6.4%
Net profit (adj) growth 126.3% 21.4% 7.0%

Market Performance

The Hang Seng Index showed a steady performance in comparison to Xiaomi’s progress. Xiaomi’s strategic moves and ecosystem strategy contributed to its positive market performance.

Company Financials

Income Statement

Metric FY2019 FY2020 FY2021 FY2022 FY2023
Revenue 205,838.7 245,865.6 328,309.1 280,044.0 270,970.1
Gross Profit 28,554.0 36,751.9 58,260.9 47,577.2 57,476.2
Operating Income 11,760.2 24,034.7 26,028.7 2,816.5 20,008.7
Net Income 10,044.2 20,355.5 19,339.3 2,474.0 17,475.2
Basic Earnings per Share 0.4 0.8 0.8 0.1 0.7

Profitability Ratios

Metric FY2019 FY2020 FY2021 FY2022 FY2023
Return on Equity 13.16 19.86 14.82 1.76 11.36
Return on Assets 6.14 9.29 7.06 0.88 5.85
Operating Margin 5.71 9.78 7.93 1.01 7.38
Net Income Margin 4.88 8.28 5.89 0.88 6.45

Credit Ratios

Metric FY2019 FY2020 FY2021 FY2022 FY2023
Total Debt/EBIT 2.36 1.97 1.47 4.29 2.04
Net Debt/EBIT -5.75 -8.20 -2.83 -6.87 -5.33
EBIT to Interest Expense 28.39 19.89 25.53 5.37 12.70
Long-Term Debt/Total Assets 2.91 4.40 7.67 8.39 7.07

ESG Updates

In October 2024, Xiaomi’s ESG rating was upgraded due to improvements in corporate governance and expanded recycling efforts. With 89% of its revenue from clean technology, Xiaomi’s environmental score ranks above the industry average. However, its social score is below peers due to heavy reliance on outsourced manufacturing and associated supply chain labor risks. Allegations of indirect involvement in employing ethnic minorities through state-sponsored labor-transfer programs have been noted. Xiaomi is also exposed to data breach risks due to its smart device apps handling personal user data. To mitigate these risks, Xiaomi provides staff training, oversees suppliers for data security, and obtains external security certifications.

Potential Catalysts

  • Shipments of smartphones and IoT devices could surpass expectations.
  • A faster-than-expected recovery in advertising demand-supply dynamics.
  • Monetization of users outside of China could lead to a spike in top-line growth.

Investment Risks

  • Margin deterioration due to competitive pressures.
  • Operating in a highly competitive smartphone market.
  • Trade issues and potential sanctions impacting hardware production.
  • A slump in smartphone demand in China.
  • Supply chain bottlenecks.

Valuation Analysis

Company Price/Earnings Price/Book EV/EBITDA Dividend Yield (%) ROE (%)
Xiaomi Corp (1810.HK) 29.0 3.3 21.9 0.0 11.6
Tencent Holdings Ltd (0700.HK) 17.0 3.7 13.4 1.0 21.4
Apple Inc (AAPL.O) 29.9 50.4 23.5 0.5 183.2
Samsung Electronics Co Ltd (005930.KS) 11.2 1.0 4.0 2.6 9.2
AAC Technologies Holdings Inc (2018.HK) 20.4 1.3 7.4 0.8 7.1

Company Overview

Xiaomi Corporation, founded in April 2010, was listed on the Main Board of the Hong Kong Stock Exchange on 9 July 2018 (1810.HK). As of 2Q23, Xiaomi ranked among the top three in the global smartphone market in terms of shipments. The company has also established the world’s leading consumer AIoT (AI+IoT) platform, with 655 million smart devices connected, excluding smartphones, tablets, and laptops, as of 30 June 2023. Xiaomi products are present in more than 100 countries and regions worldwide.

Revenue Breakdown

By Segment

  • Smartphones: 58.1%
  • IoT & Lifestyle products: 29.6%
  • Internet Services: 11.1%
  • Others: 1.2%

By Geography

  • China: 55.1%
  • Rest of the World: 44.9%

Monthly Active MI User Interface Users

The number of Monthly Active MI User Interface Users has shown significant growth over the years, indicating Xiaomi’s strong user base and engagement.

  • FY19: 309.6 million
  • FY20: 396.3 million
  • FY21: 508.9 million
  • FY22: 582.1 million
  • FY23: 641.2 million


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