20200402-尚乘集团-小米集团-W-01810.HK-Diversification_played_in_macro_headwinds,_expect_smartphone_sales_bounce_back_in_2H_10页_1mb

Xiaomi FY19 Performance and FY20 Outlook Summary

Core Content

Xiaomi's FY19 financial performance and FY20 outlook are outlined in this report, highlighting the company's resilience amid macroeconomic challenges and the potential for growth in the upcoming year.

Main Points

• Revenue Growth: Xiaomi's FY19 full-year revenue reached Rmb206bn, a 18% increase YoY. Q4 revenue was Rmb56.5bn, up 27.1% YoY and 5.2% QoQ.
• Gross Profit: FY19 gross profit was Rmb28.6bn, a 29% YoY increase. Q4 gross profit was Rmb7.8bn, up 39% YoY but down 5% QoQ.
• Operating Expenses: Q4 operating expenses increased by 46%, primarily due to marketing and branding activities.
• Non-IFRS Net Profit: Non-IFRS full year net profit was Rmb11.5bn, up 35% YoY, aligning with expectations.
• Smartphone Segment:
  • Q4 smartphone shipment was 32.6mn units, up 30.5% YoY.
  • Revenue grew by 22.8% YoY.
  • Gross margin declined slightly to 7.8% in Q4 from 9.0% in the previous quarter, attributed to promotional activities during the festival.
  • Xiaomi's entry into the premium segment with the Mi10, priced over RMB5,000, is expected to help restore smartphone gross margin to above 8%.
  • Despite Q1 (China) and Q2 (overseas) shipment challenges due to the impact of the pandemic, the report expects a bounce back in 2H with full-year smartphone sales growth of 9% in FY20.
• IoT Segment:
  • IoT revenue in FY19 was Rmb62bn, up 42% YoY.
  • Smart TV shipments reached 12.8mn units, up 52% YoY.
  • Xiaomi was the world's largest smart wearable brand in 2019 by shipments.
  • The number of IoT connected devices reached 234.8mn units, up 55.6% YoY.
  • IoT revenue is expected to grow by 31% in FY20.
• Internet Services:
  • Internet service revenue reached Rmb19.8bn in FY19, with Q4 revenue at Rmb5.7bn, up 41% YoY.
  • Advertising revenue grew by 18% YoY, driven by expanded advertiser base and upgraded ad recommendation system.
  • IVAS (Interactive Video Advertising Service) revenue increased by 44% YoY.
  • Other services revenue grew more than 100% YoY.
  • MAUs on MIUI rose by 28% YoY to 310mn as of 2019.
  • ARPU (Average Revenue Per User) increased to Rmb18.4 in Q4 from Rmb16.7 in Q4 2018.
• Valuation and Price Target:
  • A price target of HK$22.0 is set for Xiaomi, representing an 116% upside from the current price of HK$10.2.
  • The valuation is based on a discounted cash flow model with a 13.4% cost of equity and a 3% long-term growth rate.
• Key Forecasts:
  • Non-IFRS net profit for FY20 is expected to be Rmb11,799m, with a 2% YoY growth.
  • Revenue for FY20 is projected at Rmb247,153m, with a 20% YoY growth.
  • Smartphone shipment is forecasted to be 136mn units in FY20, up 9% YoY.
  • Gross margin is expected to be 14.4% in FY20, with a slight decline in non-IFRS net margin to 4.8%.
  • EPS (Earnings Per Share) is forecasted at Rmb0.47 for FY20.
• Valuation Metrics:
  • P/E (adjusted) for FY19 was 19.7, and is expected to be 19.9 in FY20 and 16.8 in FY21.
  • P/S (Price-to-Sales) is 1.1 in FY19, 0.9 in FY20, and 0.7 in FY21.
  • ROE (Return on Equity) was 15.1% in FY19 and is expected to be 13.4% in FY20.
  • ROA (Return on Assets) was 7.0% in FY19 and is expected to be 6.3% in FY20.
• Key Risks:
  • Prolonged economic downturn due to the ongoing effects of the pandemic.
  • Stiff competition in the smartphone market.
  • Weaker-than-expected monetization of internet services.

Key Forecasts Table

Metric	2019 Actual (Rmb m)	2020e (Rmb m)	2021e (Rmb m)
Non-IFRS net profit	11,532	11,799	13,815
YoY growth %	35%	2%	17%
Revenue	205,839	247,153	312,198
YoY growth %	18%	20%	26%
Smartphone shipment (mn units)	125	136	164
YoY growth %	5%	9%	21%
Gross margin	13.9%	14.4%	14.3%
Non-IFRS net margin	5.6%	4.8%	4.4%
EPS (Rmb/shr)	0.49	0.47	0.52

Summary of Key Figures

• Smartphone Sales: Expected to rebound in 2H FY20 due to 5G ramp-up and resilience in sales.
• IoT Growth: Maintained strong growth, with revenue up 42% YoY in FY19 and expected to grow by 31% in FY20.
• Diversification: Played a key role in offsetting macroeconomic headwinds, with internet services contributing significantly to growth.
• Valuation: Price target of HK$22.0 with 116% upside, based on strong revenue and profit growth expectations.

Conclusion

Xiaomi's FY19 performance showed strong revenue and profit growth, driven by a diverse product lineup and effective diversification strategies. Despite the challenges posed by the pandemic, the report remains optimistic about FY20 growth, particularly in the smartphone and IoT segments. The price target reflects the company's potential for continued value creation, though risks remain in the form of economic downturns and market competition.