20221130-招银国际-小米集团-W-01810.HK-Corp_Day_Takeaways__smartphone_destocking_to_continue_into_4Q22E_7页_1mb

Xiaomi (1810 HK) Summary

Core Content

Xiaomi's Corporate Day on 29 Nov provided insights into its financial performance, business strategies, and future outlook. The report highlights the following key areas:

• Smartphone Destocking: Xiaomi's inventory in China returned to a healthy level in 3Q22 due to strong sales during 618 and Double 11 festivals, while overseas markets continue to experience destocking during the 4Q22 festival season (e.g., Black Friday, Xmas). Despite a soft market outlook, the company expects to resume global smartphone share gains in 2023E.
• AloT Business: Near-term headwinds were noted due to inflation in the EU affecting key products like scooters, but China sales remained resilient. Long-term outlook is positive, with confidence in recovery and expansion.
• R&D and EV Business: Xiaomi has committed to investing RMB100bn in R&D over the next five years. The EV business is expected to see increased R&D expenses in 4Q22E and FY23E, focusing on headcount and CAPEX for plants and facilities.
• Valuation and Investment Recommendation: The stock is currently trading at 16.7x FY23E P/E, which is close to 1 standard deviation below the 3-year average of 15.9x. The report maintains a BUY rating with a target price of HK$12.28 (25% upside) based on a 20x FY23E P/E multiple.

Key Financial Highlights

• Revenue: Expected to grow from RMB286,870 million in FY22E to RMB346,419 million in FY23E and RMB346,419 million in FY24E.
• Adjusted Net Profit: Projected to increase from RMB8,878 million in FY22E to RMB13,734 million in FY23E and RMB15,554 million in FY24E.
• EPS (Adjusted): Expected to rise from RMB0.36 in FY22E to RMB0.55 in FY23E and RMB0.62 in FY24E.
• P/E Ratio: Current P/E is 16.7x for FY23E, while the 3-year average is 15.9x.
• P/B Ratio: Currently at 1.5x for FY23E, with a declining trend over the years.
• ROE: Expected to be 8.5% in FY23E and 8.9% in FY24E, showing a slight improvement.
• Net Gearing: Declining from 96.0% in FY20A to 54.1% in FY24E, indicating improved financial leverage.

Market Share and Product Performance

• Global Smartphone Market Share: Xiaomi continues to be a significant player, with its market share expected to remain competitive.
• Smartphone Shipment Forecast: Xiaomi's smartphone shipments are projected to increase slightly in FY23E, with a forecasted growth of 5% and 11% in FY24E.
• Smartphone ASP: The average selling price (ASP) is expected to rise, showing a positive trend in pricing strategy.
• AloT and Lifestyle Products: These products are expected to show growth in FY23E and FY24E, with a YoY growth of 10% and 15%, respectively.
• Internet Services: Revenue is expected to grow by 10% in FY23E and 10% in FY24E, indicating a positive outlook for this segment.
• Advertising Services: These are also projected to grow, with a 10% increase in FY23E and FY24E.

Catalysts for Future Growth

• Smart EV Progress: Expected to be a key driver of growth, with significant R&D investment.
• Product Launches: Anticipated new product launches will support market share gains.
• Market Share Recovery: The company expects to recover its market share in China and expand its product portfolio globally.
• Internet Revenue Recovery: Positive outlook for internet services as the market stabilizes.

Shareholding and Stock Performance

• Shareholding Structure: Lin Bin and Smart Mobile Holdings Ltd each hold 8.6% of the shares.
• Stock Performance: The stock has shown mixed performance over the past year, with a 14.3% gain in 1 month, -12.5% in 3 months, and -14.1% in 6 months.
• Market Cap: Current market cap is HK$202,809.7 million.
• 52-Week High/Low: The stock has traded between HK$8.45 and HK$19.66 in the last 52 weeks.

Valuation Comparison

• Peer Valuation: Xiaomi's P/E ratio is below the 3-year average, making it an attractive risk-reward opportunity compared to peers like Sunny Optical, AAC Tech, and BYDE.
• Target Price: HK$12.28, which is based on a 20x FY23E P/E ratio, suggesting potential upside of 25%.

Financial Summary

• Operating Cash Flow: Expected to increase from RMB14,927 million in FY22E to RMB17,868 million in FY23E and RMB19,406 million in FY24E.
• Investing Cash Flow: Negative in FY22E and FY23E, but expected to remain stable.
• Financing Cash Flow: Positive in FY20A and FY21A, but expected to be neutral in FY22E and FY23E.

Analyst Certification and Disclaimers

• The analyst certifies that the views expressed accurately reflect their personal views and that they have no financial interest in the companies covered.
• The report is subject to the code of conduct issued by The Hong Kong Securities and Futures Commission, and the analyst has no conflicts of interest.

CMBIGM Ratings

• BUY: Indicates potential return of over 15% over the next 12 months.
• HOLD: Indicates potential return between +15% and -10% over the next 12 months.
• SELL: Indicates potential loss of over 10% over the next 12 months.
• NOT RATED: Indicates the stock is not rated by CMBIGM.

Industry Outlook

• OUTPERFORM: The industry is expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: The industry is expected to perform in-line with the benchmark.
• UNDERPERFORM: The industry is expected to underperform the benchmark.

This summary highlights Xiaomi's strategic focus, financial performance, and valuation prospects, suggesting a positive outlook despite current market challenges.