20211124-招银国际-小米集团-W-01810.HK-Solid_3Q21_despite_supply_chain_challenge__Reiterate_BUY_7页_1mb

Xiaomi (1810 HK) - Equity Research Summary

Core Content

Xiaomi's 3Q21 performance was solid despite supply chain challenges. Revenue and adjusted net profit grew by 8% and 25% YoY, respectively, slightly exceeding consensus expectations. This growth was driven by flattish smartphone growth (+0.5% YoY), stronger advertising revenue (+45% YoY), and improved margins in both smartphone and internet services.

Key highlights include:

• China expansion to over 10,000 offline stores.
• Chip shortage expected to persist until 2H22E.
• Internet revenue growth attributed to premium smartphone models and overseas user expansion.
• AIoT margin recovery anticipated in 4Q22E as logistics costs normalize.

Main Points

• 3Q21 Revenue: RMB 78,063 million, slightly above the CMBIS estimate and consensus.
• Gross Profit: RMB 14,292 million, up 41% YoY, with a Gross Margin of 18.3%.
• Operating Profit: RMB 2,730 million, down 59% YoY, with an Operating Margin of 3.5%.
• Adj. Net Profit: RMB 5,176 million, up 25% YoY, with an Adj. Net Margin of 6.6%.
• Adj. EPS: RMB 0.20, up 15% YoY, slightly above consensus.

Key Financial Metrics

Earnings Revisions

• CMBIS adjusted FY21-22E adj. net profit to reflect supply chain constraints and margin improvements.
• FY22-23E adj. EPS are 8-9% above consensus, based on a more optimistic outlook on smartphone market share and margin improvement.
• The new target price (TP) is HK$31.34, based on a 26x FY22E P/E, with an upside of 51% from the current price of HK$20.70.

Outlook and Strategy

• 4Q21E/2022E: Expected to see global share gains, component shortages, and continued advertising momentum.
• Smartphone shipments are expected to grow by 30% / 25% / 14% YoY in FY21-23E, reaching 191mn / 238mn / 271mn.
• Xiaomi plans to enhance efficiency at $10k+ offline stores in China and expand sales networks in Europe.
• Internet services are projected to benefit from a stronger user base and search ads in overseas markets.

Valuation and Peer Comparison

• Current valuation at 17.2x FY22E P/E is close to 1-sd below 3-yr average at 16.4x, suggesting attractive risk-reward.
• Catalysts include product launches, market share gains, internet revenue recovery, and smart EV progress.
• Peer comparison (12M forward P/E and P/B bands) shows Xiaomi's valuation is in line with industry trends.

Shareholding and Performance

• Shareholding Structure:

  • Lin Bin: 8.91%
  • Smart Mobile Holdings Ltd: 8.41%
  • Mini Stone: 2.74%

• Share Performance:

  • 1-mth: -7.5% absolute, -3.2% relative
  • 3-mth: -10.9% absolute, -11.2% relative
  • 6-mth: -23.9% absolute, -13.2% relative

• 12-mth Price Performance: Not specified in the text but shown in an image.

Financial Summary

Income Statement

• Revenue grew by 31.5% in FY21E, reaching RMB 323,220 million.
• Gross Profit increased to RMB 57,657 million, with a Gross Margin of 17.8%.
• Adj. Net Profit reached RMB 22,222 million, up 55.9% YoY.

Cash Flow

• Net cash from operations is projected to increase to RMB 45,145 million in FY23E.
• Capex is expected to be RMB 9,927 million.
• Net change in cash is projected to be RMB 35,218 million.

Balance Sheet

• Total assets are expected to grow to RMB 362,036 million in FY23E.
• Total liabilities are projected to increase to RMB 162,233 million.
• Shareholders' equity is expected to rise to RMB 199,803 million.

Conclusion

Xiaomi's 3Q21 results reflect resilient growth amid supply chain challenges, with stronger margins and internet revenue as key drivers. The reiterated BUY recommendation is based on the attractive valuation and positive outlook for market share gains, product launches, and internet recovery. The target price of HK$31.34 is based on a 26x FY22E P/E, indicating significant upside potential.