20220520-招银国际-小米集团-W-01810.HK-Weak_1Q22_in-line__Expect_short-term_challenges_7页

Xiaomi (1810 HK) Company Update Summary

Core Content and Key Highlights

Xiaomi reported a weak 1Q22 with revenue and adjusted net profit declining by 5% and 53% YoY respectively, largely in line with consensus estimates. This decline was attributed to several factors:

• Smartphone Segment: A 11% YoY drop in revenue, driven by supply chain disruptions, lower smartphone demand, and FX volatility. Shipment decreased by 22% YoY, while average selling price (ASP) increased by 14% YoY.
• AloT and Internet Services: AloT revenue grew by 7% YoY, slower than the previous quarter's 19%, while internet services revenue increased by 8% YoY, below the previous quarter's 18%, due to slower ad and gaming growth.
• White Goods and TV Internet Revenue: Strong growth in white goods (25% YoY) and TV internet revenue (15% of 1Q China internet revenue).
• Overseas Internet Revenue: Increased by 71% YoY, contributing 22% to the revenue mix.

Despite the challenges, Xiaomi's global market share gains in LATAM and Africa are viewed positively. The report also highlights the company's new retail strategy in China and solid MIUI MAU growth.

2022E Outlook and Financial Projections

The report forecasts:

• Smartphone Shipments: A 6% YoY decline to 179 million units in FY22E, with recovery expected to 195 million in FY23E and 213 million in FY24E.
• Revenue Growth: 1.9% YoY in FY22E, followed by 13.9% and 15.6% in FY23E and FY24E respectively.
• Adjusted Net Profit (Adj. NP): Expected to decline by 8-14% YoY for FY22E-FY24E due to lower smartphone shipments and higher R&D expenses.
• Adjusted EPS (Adj. EPS): Revised down by 8-14% YoY, but the report remains positive on future growth in gross margin and operating leverage.

Earnings Revisions and Valuation

The report revised its earnings estimates for FY22E-FY24E, with the following changes:

• Revenue: Down by 6% YoY.
• Gross Profit: Down by 6% YoY.
• Operating Profit: Down by 82% YoY.
• Adj. Net Profit: Down by 14% YoY.
• Adj. EPS: Down by 14% YoY.
• Gross Margin: Down by 0.1 ppt.
• Operating Margin: Down by 7 ppt.
• Adj. Net Margin: Down by 0.5 ppt.

The target price (TP) for Xiaomi was revised to HK$15.1, representing a 36% upside from the current price of HK$11.08. This TP is based on a 20x FY22E P/E ratio. The current valuation is at 14.7x FY22E P/E, which is below the 1-standard deviation range of the 3-year average of 15.9x.

Catalysts and Investment View

The report maintains a BUY rating, citing the following catalysts:

• Easing of COVID-19 restrictions in China.
• Stronger shipment growth in the second half of 2022.
• Share gains in LATAM and Africa.
• Recovery in internet revenue.
• Progress in smart EV development.

The report views the risk-reward profile as attractive, with a current price that is undervalued relative to the 3-year average P/E ratio.

Key Financial Metrics

Shareholding and Performance

• Shareholding Structure:

  • Lin Bin: 8.62%
  • Smart Mobile Holdings Ltd: 8.53%
  • Blackrock: 2.86%

• Share Performance:

  • 1-month: -8.0%
  • 3-months: -31.4%
  • 6-months: -47.6%

• 12-Month Price Performance: Not provided in detail, but referenced as a chart.

Recent Reports

• 1Q22 Preview: Not immune from industry slowdown (16 May 2022)
• Premium Strategy Bearing Fruits; Reiterate BUY (23 Mar 2022)
• 4Q21E Preview: Smartphone share gain to continue (21 Mar 2022)

Focus Charts

• Figure 1: Xiaomi revenue trend
• Figure 2: Xiaomi margin trend
• Figure 3: Xiaomi smartphone shipment forecast
• Figure 4: Global smartphone market share
• Figure 5: Xiaomi's New Retail Strategy in China
• Figure 6: Xiaomi's solid MIUI MAU growth
• Figure 7: 1Q22 results review
• Figure 8: Revenue breakdown
• Figure 9: CMBIGM earnings revision
• Figure 10: CMBIGM estimates vs consensus
• Figure 11: 12M forward P/E band
• Figure 12: 12M forward P/B band

Conclusion

Xiaomi's 1Q22 performance was weaker than expected, primarily due to smartphone and internet services challenges. However, the company is expected to recover in the second half of 2022, supported by global market share gains and strong performance in white goods and internet services. The report maintains a BUY rating with a new TP of HK$15.1, indicating a 36% upside from the current price. The valuation is considered attractive, and the company's long-term growth prospects remain positive.