20221124-招银国际-小米集团-W-01810.HK-Weak_3Q22_as_anticipated__Expect_sequential_recovery_ahead_8页_1mb

Xiaomi (1810 HK) Summary

Core Content

Xiaomi's third quarter of 2022 (3Q22) showed a weaker performance, as expected due to global macroeconomic challenges and declining smartphone demand. The company reported a 10% YoY decline in revenue and a 59% YoY decline in adjusted net profit, primarily driven by:

• A 11% YoY drop in smartphone revenue, with shipment and ASP declining by 8% and 3% YoY, respectively, due to weak demand across all regions and heavy promotions in India during the festival season.
• A 9% YoY decline in IoT revenue and 3.7% YoY decline in internet services revenue, attributed to weak ad budgets and lower smartphone shipments.
• A 26% YoY increase in R&D expenses for EV and new initiatives.

The gross margin for 3Q22 dropped to 16.6% from 18.3% in 3Q21, mainly due to the impact of promotions and inventory destocking.

Main Points

• Smartphone Segment:

  • Healthy inventory levels in China.
  • Gradual destocking in overseas markets.
  • Shipment and ASP declined by 8% and 3% YoY, respectively.

• AIoT Segment:

  • Strong performance in large home appliances in China.
  • Challenging sales in overseas markets, especially the EU, due to strong dollar and high inflation.

• Internet Services:

  • Stable MAU growth.
  • Weak ad sales leading to a decline in revenue.

• Outlook for 4Q22E:

  • Revenue and earnings are expected to decline by 15% and 57% YoY, respectively.
  • Seasonal demand and promotional events like Black Friday and Christmas may help accelerate destocking.
  • Positive outlook on market share expansion in LATAM and SEA markets.
  • Healthy content value growth in the TV ad business.

Key Information

• Target Price: HK$12.28, a 25.4% upside from the current price of HK$9.80.
• Valuation: Current P/E is 16.2x for FY23E, close to 1 standard deviation below the 3-year average of 15.9x.
• Earnings Revision:
  • Adjusted net profit for FY23E and FY24E was trimmed by 1-2% from previous estimates.
  • The new estimates reflect lower smartphone shipments and higher expenses.

Financial Highlights

Revenue and Profit

Earnings Per Share (EPS)

Gross Margin

Operating Margin

Adjusted Net Margin

Valuation and Investment Outlook

• Valuation: Current valuation at 16.2x FY23E P/E is considered attractive compared to the 3-year average of 15.9x.
• Investment Recommendation: Maintain BUY with a new target price of HK$12.28.
• Catalysts:
  • Sequential macroeconomic recovery in 1H23E.
  • Smart EV progress.
  • Product launches and market share gains.
  • Healthy content value growth in the TV ad business.

Shareholding and Performance

• Shareholding Structure:

  • Lin Bin: 8.6%
  • Smart Mobile Holdings Ltd: 8.6%

• Stock Performance:

  • 1-month: +5.9%
  • 3-months: -12.3%
  • 6-months: -14.8%
  • 12-months: 0.1% (relative to market)

• Market Cap: HK$199,351.6 million

• Average 3-months Trading: HK$9.9 million

Financial Summary

Income Statement

Balance Sheet

Cash Flow

Peer Comparison

Conclusion

Despite the weak 3Q22 performance, Xiaomi is expected to recover sequentially, driven by macroeconomic improvements and continued investment in smart EVs and new initiatives. The current valuation is viewed as attractive, and the BUY recommendation is maintained with a new target price of HK$12.28. Key growth areas include AIoT, internet services, and market share expansion in emerging regions.