In-Depth Analysis of Xiaomi Corp and Peers
Broker: OCBC Investment Research
Date: 5 November 2024
Encouraging Growth Outlook for Xiaomi Corp
Xiaomi Corp has shown an encouraging growth outlook, with global smartphone shipments growing by 5% year-on-year (YoY) in 3Q24. Retaining its third place in the global smartphone market, Xiaomi now stands fourth in China. The company’s innovative ecosystem strategy, “Human x Car x Home,” has successfully attracted a broader and more stable consumer base.
Investment Thesis
Founded in 2010, Xiaomi is a technology product and services company, focusing on smartphones, IoT products, and related internet services. Xiaomi has expanded beyond its Chinese home market, becoming the smartphone market leader in India and gaining market share in Europe. According to Canalys, Xiaomi ranked among the top three in global smartphone shipments. The company uniquely combines high-quality, affordable smartphones with a smart IoT hardware ecosystem and Internet services-based monetization. Xiaomi’s strong cash flow is expected to support its electric vehicle (EV) foray, although the company may face challenges from macroeconomic weaknesses and stiff competition.
Investment Summary
Global smartphone shipments saw a fourth consecutive quarter of growth, with a 5% YoY increase in 3Q24, reaching 309.9 million units—the strongest 3Q performance since 2021. This growth was driven by aggressive product launches and favorable refresh cycles, encouraging consumer upgrades. Xiaomi retained third place with 42.8 million units shipped and a 14% market share, benefiting from strategic inventory positioning in key markets. In China, the smartphone market continued to recover, bolstered by summer and back-to-school sales, with 3Q24 shipments rising 4% YoY to 69.1 million units. Xiaomi moved up to fourth place with a 15% market share, shipping 10.2 million units and achieving 13% YoY growth.
Financial Summary and Performance
| Metrics | FY23 | FY24E | FY25E |
|---|---|---|---|
| Revenue (CNY million) | 270,970 | 345,337 | 393,353 |
| Gross Profit (CNY million) | 57,476 | 73,851 | 84,758 |
| Operating Profit (CNY million) | 20,009 | 19,353 | 23,849 |
| Net Profit (adj) (CNY million) | 19,273 | 23,402 | 25,037 |
Key Ratios
| Metrics | 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% |
ESG Updates
Xiaomi’s ESG rating was upgraded in October 2024 due to improved corporate governance and expanded recycling efforts. With 89% of its revenue from clean technology, Xiaomi’s environmental score ranks above industry average. However, its social score remains below peers due to heavy reliance on outsourced manufacturing, exposing it to supply chain labor risks. Allegations of indirect involvement in state-sponsored labor programs and data breach risks from its smart device apps also affect its social score. Xiaomi mitigates these risks through staff training, supplier oversight, and external security certifications.
Potential Catalysts and Investment Risks
Potential Catalysts
- Shipments of smartphones and IoT devices could exceed expectations
- Faster-than-expected recovery in advertising demand-supply dynamics
- Monetization of users outside China could lead to top line growth
Investment Risks
- Margin deterioration
- Intense competition in the smartphone market
- Trade issues and potential sanctions affecting production capabilities
- Slump in smartphone momentum in China
- Supply chain bottlenecks
Comparative Analysis of Xiaomi and Peers
| 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 was founded in April 2010 and listed on the Main Board of the Hong Kong Stock Exchange on 9 July 2018 (1810.HK). Xiaomi is a technology company with smartphones, IoT products, and internet business at its core. As of 2Q23, Xiaomi ranked among the top three in the global smartphone market, according to Canalys. The company also boasts the world’s leading consumer AIoT platform, with 655 million smart devices connected as of 30 June 2023. Xiaomi products are available in over 100 countries and regions worldwide.
Revenue and Gross Profit Breakdown
| Segment | FY23 Revenue (%) | FY23 Gross Profit (%) |
|---|---|---|
| Smartphones | 58.1% | 40.0% |
| IoT & Lifestyle Products | 29.6% | 22.8% |
| Internet Services | 11.1% | 38.9% |
| Others | 1.2% | -1.6% |
Geographic Revenue Breakdown
The geographic revenue breakdown for FY23 shows that 55.1% of revenue came from China, while 44.9% was from the rest of the world.
Monthly Active MI User Interface Users
Xiaomi’s Monthly Active MI User Interface Users have grown significantly, from 309.6 million in FY19 to 641.2 million in FY23, showing a consistent year-over-year growth.
Company Financials
| Metrics | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 |
|---|---|---|---|---|---|
| Revenue (CNY million) | 205,838.7 | 245,865.6 | 328,309.1 | 280,044.0 | 270,970.1 |
| Cost of Revenue (CNY million) | 177,284.6 | 209,113.8 | 270,048.2 | 232,466.8 | 213,493.9 |
| Gross Profit (CNY million) | 28,554.0 | 36,751.9 | 58,260.9 | 47,577.2 | 57,476.2 |
| Operating Expenses (CNY million) | 16,793.8 | 12,717.1 | 32,232.3 | 44,760.7 | 37,467.6 |
| Operating Income (CNY million) | 11,760.2 | 24,034.7 | 26,028.7 | 2,816.5 | 20,008.7 |
| Interest Expense (CNY million) | 277.8 | 472.5 | 784.3 | 1,130.3 | 1,150.2 |
| Pretax Income (CNY million) | 12,162.6 | 21,633.4 | 24,417.0 | 3,934.0 | 22,011.0 |
| Income Tax Expense (CNY million) | 2,059.7 | 1,320.7 | 5,133.8 | 1,431.4 | 4,536.9 |
| Net Income (CNY million) | 10,044.2 | 20,355.5 | 19,339.3 | 2,474.0 | 17,475.2 |
| Basic Earnings per Share (CNY) | 0.4 | 0.8 | 0.8 | 0.1 | 0.7 |
Profitability Ratios
| Metrics | FY2018 | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 |
|---|---|---|---|---|---|---|
| Return on Common Equity | – | 13.16 | 19.86 | 14.82 | 1.76 | 11.36 |
| Return on Assets | – | 6.14 | 9.29 | 7.06 | 0.88 | 5.85 |
| Return on Capital | – | 19.16 | 14.40 | 11.29 | 10.37 | 9.60 |
| Return on Invested Capital | – | 33.43 | 35.27 | 16.34 | 8.97 | 10.69 |
Credit Ratios
| Metrics | 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 |
| Net Debt/Equity | -0.55 | -0.62 | -0.41 | -0.29 | -0.47 |
Analyst Declaration
The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views about
