Encouraging Growth Outlook
Global smartphone shipments observed a 5% year-on-year (YoY) growth in 3Q24. Xiaomi retained its third position in the global smartphone market and advanced to fourth place in China. The company’s ecosystem strategy, “Human x Car x Home,” has been pivotal in attracting a broader and more stable consumer base.
Investment Thesis
Founded in 2010, Xiaomi is a technology product and services company primarily focusing on smartphones, Internet of Things (IoT) products, and related internet services. Beyond its home market in China, Xiaomi has expanded its footprint to other markets, emerging as the smartphone market leader in India and gaining market share in Europe. According to Canalys, Xiaomi is among the top three in the global smartphone market in terms of shipments. Xiaomi combines affordably priced, high-quality smartphones with a smart IoT hardware product ecosystem and Internet services-based monetization. This distinctive business model supports Xiaomi’s strong cash flow, which in turn backs its foray into the electric vehicle (EV) sector. Despite these strengths, Xiaomi is likely to face challenges from overall macroeconomic weakness and fierce competition.
Investment Summary
Global smartphone shipments marked their fourth consecutive quarter of growth, with a 5% YoY increase in 3Q24, reaching 309.9 million units. This growth was driven by aggressive product launches with strong value propositions, encouraging consumers to upgrade amid a favorable refresh cycle and positive consumer sentiment. 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.
In China, the smartphone market continued to recover, bolstered by summer and back-to-school sales. In 3Q24, shipments rose 4% YoY to 69.1 million units. Vivo led the market with a 19% share, followed by Huawei (16%) and HONOR (15%). Xiaomi moved up to fourth place with a 15% market share, shipping 10.2 million units and achieving 13% YoY growth. Xiaomi’s “Human x Car x Home” ecosystem strategy has been instrumental in attracting a more stable consumer base. Canalys research expects the moderate recovery in China’s smartphone market to continue into next year, supported by favorable monetary policies and consumer stimulus to boost the economy and retail sector.
Electric Vehicle (EV) Segment
On track to achieve its EV shipment goal of 120,000 units in FY24, Xiaomi delivered 39,800 EVs in 3Q24, with October shipments reaching 20,000 units. The company appears on track to meet its goal of 100,000 units by early November and 120,000 units by FY24. Sequential margin improvements in its EV business could lead to a smaller net loss this quarter. Despite Xiaomi’s share price outperformance, the company remains positive due to improved earnings visibility, smartphone market share growth, margin recovery, and its EV deliveries, with potential average selling price (ASP) growth following the SU7 Ultra and SUV launches in 1Q25. The fair value estimate for Xiaomi has been raised from HKD26 to HKD34 on higher growth forecasts and sum-of-the-parts (SOTP) valuation multiples.
Environmental, Social, and Governance (ESG) Updates
Xiaomi’s ESG rating was upgraded in October 2024, reflecting improvements in corporate governance and expanded recycling efforts. With 89% of its revenue from business lines commonly involved in clean technology, Xiaomi’s environmental score ranks above the industry average. However, its social score ranks below its peers due to heavy reliance on outsourced manufacturing, exposing it to supply chain labor risks. Allegations of indirect involvement in controversies related to employing ethnic minorities through coercive state-sponsored labor-transfer programs have also been noted. Additionally, Xiaomi’s smart device apps handle personal user data, exposing the company to data breach risks. 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 be better than expected.
- Faster-than-expected recovery in advertising demand-supply dynamics.
- Monetization of users outside China could see a spike in top-line growth.
Investment Risks
- Margin deterioration.
- Highly competitive smartphone market where competition could intensify.
- Trade issues and potential sanctions impacting hardware production as key components are sourced from US companies.
- Slump in smartphone momentum in China.
- Supply chain bottlenecks.
Valuation Analysis
| Company |
FY24E P/E |
FY25E P/E |
FY24E P/B |
FY25E P/B |
FY24E EV/EBITDA |
FY25E EV/EBITDA |
FY24E Dividend Yield (%) |
FY25E Dividend Yield (%) |
FY24E ROE (%) |
FY25E ROE (%) |
| Xiaomi Corp (1810.HK) |
29.0 |
24.7 |
3.3 |
3.0 |
21.9 |
17.4 |
0.0 |
0.0 |
11.6 |
12.2 |
| Tencent Holdings Ltd (0700.HK) |
17.0 |
15.3 |
3.7 |
3.2 |
13.4 |
11.9 |
1.0 |
1.2 |
21.4 |
20.7 |
| Apple Inc (AAPL.O) |
29.9 |
26.7 |
50.4 |
39.8 |
23.5 |
21.4 |
0.5 |
0.5 |
183.2 |
183.4 |
| Samsung Electronics Co Ltd (005930.KS) |
11.2 |
9.3 |
1.0 |
0.9 |
4.0 |
3.4 |
2.6 |
2.6 |
9.2 |
10.0 |
| AAC Technologies Holdings Inc (2018.HK) |
20.4 |
16.0 |
1.3 |
1.3 |
7.4 |
6.6 |
0.8 |
0.9 |
7.1 |
8.6 |
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 in terms of shipments, according to Canalys. The company has established the world’s leading consumer AIoT (AI+IoT) platform, with 655 million smart devices connected to its platform, excluding smartphones, tablets, and laptops, as of 30 June 2023. Xiaomi products are present in more than 100 countries and regions globally.
Financial Summary
FY23 Revenue Breakdown
- Smartphones: 58.1%
- IoT & Lifestyle Products: 29.6%
- Internet Services: 11.1%
- Others: 1.2%
FY23 Gross Profit Breakdown
- Smartphones: 40.0%
- IoT & Lifestyle Products: 22.8%
- Internet Services: 38.9%
- Others: -1.6%
Monthly Active MI User Interface Users
309.6 million in FY19, 396.3 million in FY20, 508.9 million in FY21, 582.1 million in FY22, and 641.2 million in FY23.
Revenue by Geography
- China: 55.1%
- Rest of the World: 44.9%
Company Financials
Income Statement (In Millions of CNY)
| Year |
FY2019 |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
| Revenue |
205,838.7 |
245,865.6 |
328,309.1 |
280,044.0 |
270,970.1 |
| Cost of Revenue |
177,284.6 |
209,113.8 |
270,048.2 |
232,466.8 |
213,493.9 |
| Gross Profit |
28,554.0 |
36,751.9 |
58,260.9 |
47,577.2 |
57,476.2 |
| Operating Expenses |
16,793.8 |
12,717.1 |
32,232.3 |
44,760.7 |
37,467.6 |
| Operating Income or Losses |
11,760.2 |
24,034.7 |
26,028.7 |
2,816.5 |
20,008.7 |
| Interest Expense |
277.8 |
472.5 |
784.3 |
1,130.3 |
1,150.2 |
| Net Non-Operating Losses (Gains) |
-680.2 |
1,928.8 |
827.3 |
-2,247.8 |
-3,152.6 |
| Pretax Income |
12,162.6 |
21,633.4 |
24,417.0 |
3,934.0 |
22,011.0 |
| Income Tax Expense (Benefit) |
2,059.7 |
1,320.7 |
5,133.8 |
1,431.4 |
4,536.9 |
| Income Before XO Items |
10,103.0 |
20,312.7 |
19,283.2 |
2,502.6 |
17,474.2 |
| Minority/Non Controlling Interests (Credits) |
58.8 |
-42.8 |
-56.1 |
28.5 |
-1.0 |
| Net Income/Net Profit (Losses) |
10,044.2 |
20,355.5 |
19,339.3 |
2,474.0 |
17,475.2 |
| Net Inc Avail to Common Shareholders |
10,044.2 |
20,355.5 |
19,339.3 |
2,474.0 |
17,475.2 |
| Normalized Income |
10,103.0 |
20,312.7 |
20,931.9 |
2,708.4 |
16,225.4 |
| Basic Earnings per Share |
0.4 |
0.8 |
0.8 |
0.1 |
0.7 |
| Basic Weighted Avg Shares |
23,746.5 |
23,986.8 |
24,927.5 |
24,828.3 |
24,884.9 |
| Diluted EPS Before Abnormal Items |
0.4 |
0.8 |
0.8 |
0.1 |
0.7 |
| Diluted EPS Before XO Items |
0.4 |
0.8 |
0.8 |
0.1 |
0.7 |
| Diluted EPS |
0.4 |
0.8 |
0.8 |
0.1 |
0.7 |
| Diluted Weighted Avg Shares |
24,508.8 |
|
