20220516-招银国际-小米集团-W-01810.HK-1Q22_preview__Not_immune_from_industry_slowdown_7页_1mb

Xiaomi (1810 HK) Company Update Summary

Core Content

Xiaomi is set to report its 1Q22 results, with expectations of a 5% YoY decline in revenue and a 52% YoY drop in adjusted net profit, attributed to the global smartphone slowdown and the impact of the ongoing COVID-19 situation in China. The company's smartphone segment is projected to see a -11% YoY revenue growth, while IoT and internet segments are expected to grow by 7% and 7%, respectively. The gross margin (GPM) is forecasted to decrease to 17.0% from 18.4% in 1Q21E.

Despite the challenges in China and India, Xiaomi remains optimistic about its global market share growth, particularly in Europe, Latin America, and Southeast Asia. The company expects smartphone shipments to remain flat in FY22E but to resume growth of 9% and 10% in FY23E and FY24E, respectively. The average selling price (ASP) is anticipated to increase by 10% YoY due to a better product mix and premiumization strategy.

Key Segments and Revenue Forecast

Smartphone

• 1Q22E shipment: 39.9mn units (-17.8% YoY)
• Market share: 12.7% (vs 12.4% in 4Q21)
• ASP growth: 10% YoY
• FY22E shipment: 190.673mn units (flat YoY)
• FY23E shipment: 208.302mn units (+9% YoY)
• FY24E shipment: 228.308mn units (+10% YoY)
• ASP growth: 2.8%, 4.6%, and 4.2% in FY22E, FY23E, and FY24E, respectively

IoT and Lifestyle Products

• 1Q22E revenue growth: 7% YoY
• FY22E revenue: 97.859mn RMB (+15% YoY)
• FY23E revenue: 115.545mn RMB (+18% YoY)
• FY24E revenue: 136.503mn RMB (+18% YoY)
• GPM: Expected to remain flat YoY, with a focus on better margins through overseas expansion

Internet Services

• 1Q22E revenue growth: 7% YoY
• FY22E revenue: 33.040mn RMB (+17% YoY)
• FY23E revenue: 39.732mn RMB (+20% YoY)
• FY24E revenue: 47.801mn RMB (+20% YoY)
• Margin: Expected to recover and grow in 2H22E, supported by a growing premium smartphone user base

Earnings and Valuation

• Adj. EPS: Trimmed to 0.79, 1.02, and 1.25 RMB for FY22E, FY23E, and FY24E, respectively, reflecting lower smartphone shipments and higher expenses
• Target Price (TP): HK$17.6 (20x FY22E P/E), representing a 59% upside from the current price of HK$11.04
• Current valuation: 12.6x FY22E P/E, which is well below the 1-sd below 3-yr average of 15.9x
• Catalysts: Product launches, stronger shipment, market share gain, internet revenue recovery, and smart EV progress

Financial Summary

Revenue

• FY20A: 245,866mn RMB (+19.4% YoY)
• FY21A: 328,309mn RMB (+33.5% YoY)
• FY22E: 354,149mn RMB (+7.9% YoY)
• FY23E: 411,633mn RMB (+16.2% YoY)
• FY24E: 478,851mn RMB (+16.3% YoY)

Adjusted Net Profit

• FY20A: 13,006mn RMB
• FY21A: 22,039mn RMB
• FY22E: 19,637mn RMB
• FY23E: 25,376mn RMB
• FY24E: 31,193mn RMB

Adjusted Net Margin

• FY20A: 5.4%
• FY21A: 6.6%
• FY22E: 6.2%
• FY23E: 6.5%
• FY24E: 6.5%

Balance Sheet Highlights

• Total assets: Expected to grow from 253,680mn RMB in FY20A to 402,575mn RMB in FY24E
• Cash & equivalents: Projected to increase from 54,752mn RMB in FY20A to 156,564mn RMB in FY24E
• Total liabilities: Expected to increase from 129,666mn RMB in FY20A to 169,941mn RMB in FY24E
• Shareholders' equity: Anticipated to grow from 124,014mn RMB in FY20A to 232,634mn RMB in FY24E

Key Ratios

• Gross margin: Expected to range from 17.2% in FY22E to 17.9% in FY24E
• Operating margin: Projected to grow from 8.7% in FY22E to 9.3% in FY24E
• Net profit margin: Anticipated to increase from 6.8% in FY22E to 7.4% in FY24E
• Current ratio: Expected to remain stable at around 1.8x
• Net debt/total equity: Net cash across all periods

Analyst Ratings and Peer Comparison

• Rating: Maintain BUY
• Peer comparison: Xiaomi's valuation is considered attractive relative to its peers, with a P/E of 12.6x FY22E, which is below the 1-sd below 3-yr average of 15.9x
• Catalysts for growth: Continued product innovation, expansion in overseas markets, and potential for internet services recovery

Conclusion

Xiaomi faces challenges in its smartphone segment due to global slowdown and China's pandemic impact, but the company's broader strategy in IoT and internet services is expected to drive future growth. Despite the downward revision in smartphone shipment forecasts, the overall outlook remains positive, with the company focusing on expanding its user base and diversifying its product portfolio. The revised target price reflects the company's valuation and growth potential, with a strong upside from the current price.