20211122-招银国际-小米集团-W-01810.HK-3Q21E_preview__improving_margin_to_offset_mutedsmartphone_growth_7页_1mb

Xiaomi (1810 HK) Company Update Summary

Core Content Overview

This report provides an analysis of Xiaomi's 3Q21E financial performance and its outlook for the upcoming quarters. It highlights the company's resilience in the face of global supply chain issues and emphasizes the potential for growth in its IoT and internet segments. The report also includes earnings revisions, valuation metrics, and a reiteration of the BUY rating.

Main Points

3Q21E Financial Preview

• Revenue: Expected to grow by 6% YoY to RMB76.4bn, slightly above the consensus of 7% YoY.
• Adj. Net Profit: Projected to increase by 21% YoY to RMB4.99bn.
• GPM: Improved to 17.4% in 3Q21E, up 0.1ppt QoQ and 3.3ppt YoY.
• Smartphone Shipment: Decreased by -4.6% YoY to 44.3mn units, outperforming the industry decline of -6.7%.
• Market Share: Reached 13.4% in 3Q21, up from 13.1% in 3Q20.
• Segment Performance:
  • Smartphones: Flattish revenue growth, with shipment and ASP growth expected to be around ±5%.
  • IoT: Revenue growth of 17% YoY.
  • Internet: Revenue growth of 19% YoY, driven by 25% YoY growth in ads and 10% YoY in VAS.

2022E Outlook

• Smartphone Shipment: Expected to grow by 30% YoY to 191mn units, with continued growth of 27% and 17% in FY21-23E.
• Market Share: Anticipated to increase, especially in China, Europe, and Latin America.
• Component Shortage: Expected to remain a challenge, but the company's premium model and market share gains are viewed positively.

Earnings Revisions

• FY21-22E Adj. Net Profit: Trimmed by 7-14% to reflect supply chain constraints and improved internet margins.
• FY22-23E EPS: 7-11% higher than the consensus, driven by a more positive outlook on smartphone market share and GPM improvements.

Valuation

• Target Price (TP): HK$31.26, representing a 48% upside from the current price of HK$21.15.
• P/E Ratio: Current valuation at 17.6x FY22E P/E is close to 1 standard deviation below the 3-year average of 16.4x.
• P/B Ratio: At 3.2x FY22E P/B, which is also below the 3-year average.
• ROE: Expected to remain stable at around 17.6%.

Key Information

Earnings Summary

Financial Highlights

• Revenue Growth: Expected to maintain a steady growth rate of 24% CAGR for FY21-23E.
• Gross Margin: Improved to 17.4% in 3Q21E, with a projected decline to 16.5% and 16.2% in FY22E and FY23E, respectively.
• Operating Margin: Expected to decrease slightly to 9.3% and 8.8% in FY22E and FY23E.
• Adj. Net Margin: Projected to decline to 6.6% and 6.5% in FY22E and FY23E.

Cash Flow and Balance Sheet

• Net Cash from Operations: Expected to increase significantly, reaching RMB39,367mn in FY22E and RMB51,975mn in FY23E.
• Cash at End of Year: Projected to grow to RMB158,329mn by FY23E.
• Total Assets: Expected to rise to RMB385,915mn by FY23E.
• Total Liabilities: Projected to increase to RMB165,854mn by FY23E.
• Shareholders' Equity: Expected to grow to RMB220,061mn by FY23E.

Key Ratios

• Sales Mix:
  • Smartphones: 63% in FY21E, expected to decrease slightly to 66% in FY23E.
  • IoT and Lifestyle Products: 27% in FY21E, expected to decrease to 25% in FY23E.
  • Internet Services: 9% in FY21E, expected to remain stable at 8% in FY23E.
• Growth Rates:
  • Revenue: Expected to grow by 23.9% in FY23E.
  • Gross Profit: Expected to grow by 21.7% in FY23E.
  • Operating Profit: Expected to grow by 17% in FY23E.
  • Adj. Net Profit: Expected to grow by 23.1% in FY23E.

Catalysts for Growth

• EV Progress: Expected to drive revenue and margin improvements.
• Product Launches: Anticipated to boost market share and revenue.
• Market Share Gain: Particularly in China, Europe, and Latin America.
• Internet Revenue Recovery: Expected from ads and VAS growth.
• Improved GPM: Due to better product mix and reduced marketing expenses.

Conclusion

• Rating: Reiterate BUY.
• Valuation: Current valuation is viewed as attractive, with a target price of HK$31.26.
• Outlook: Despite supply chain challenges, Xiaomi is expected to maintain growth through its IoT and internet segments, and benefit from market share expansion and improved margins.