20220822-招银国际-小米集团-W-01810.HK-Weak_2Q22_in-line__Expect_seasonal_demand_recovery_in_2H22E_8页_1mb

Xiaomi (1810 HK) Summary

Core Content

Xiaomi's performance in 2Q22 was in line with expectations, driven by global macroeconomic challenges and a decline in smartphone demand. The company reported a 20% YoY revenue decline and a 67% YoY adjusted net profit decline. Key factors included a 28% YoY smartphone revenue drop, weaker IoT/internet revenue, and increased R&D investment for EV and new initiatives.

The smartphone segment faced a 26% YoY shipment decline and a 3% YoY ASP drop, attributed to promotions and the absence of flagship launches. While Xiaomi maintained healthy inventory levels in China, it was high in overseas markets. AIoT revenue declined 4% YoY, with strong demand from large home appliances in China but challenges in overseas sales. Internet services revenue also declined 1% YoY due to weak advertising budgets and lower smartphone shipments.

Xiaomi's gross margin dropped to 16.8% from 17.3% in 1Q22, mainly due to lower smartphone GPM at 8.7% (from 9.9% in 1Q22) from promotions and inventory destocking. Operating margin improved slightly to 2.5% from -1.2% in 1Q22, and adjusted net margin decreased to 3.0% from 3.9%.

Despite the 2Q22 weakness, the report anticipates a seasonal demand recovery in 2H22E, driven by promotion seasons such as Double 11, Black Friday, and Christmas. The revenue decline is expected to narrow to -3% in 3Q22E and -4% in 4Q22E. The company remains optimistic about market share expansion in LATAM and SEA, as well as stable internet growth due to a growing premium smartphone user base and overseas channel expansion.

The report maintains a "BUY" rating with a new target price of HK$13.93, based on a 20x FY23E P/E, offering a 19% upside from the current price of HK$11.66. The current valuation at 16.2x FY23E P/E is close to 1-sd below the 3-year average of 15.9x, indicating an attractive risk-reward ratio. Catalysts include smart EV progress, product launches, and market share gains.

Key Financials

Key Insights

• Smartphone Segment:
  • Revenue declined 28% YoY.
  • Shipment dropped 26% YoY due to promotions and lack of flagship launches.
  • ASP decreased 3% YoY.
  • GPM fell to 8.7% from 9.9% due to promotions and inventory destocking.
• AIoT Segment:
  • Revenue declined 4% YoY.
  • Strong demand in China offset weak overseas performance.
• Internet Services:
  • Revenue declined 1% YoY due to weak advertising budgets and lower smartphone shipments.
  • MAU growth remained stable.
• Financial Performance:
  • Gross margin decreased to 16.8% from 17.3%.
  • Operating margin improved to 2.5%.
  • Adjusted net margin fell to 3.0%.
• Earnings Revision:
  • Adjusted net profit for FY22E-FY24E was trimmed by 6-20%.
  • Adjusted EPS for FY22E-FY24E is 15-18% below consensus.

Outlook and Valuation

• 2H22E Outlook: Seasonal demand recovery expected due to promotions, with revenue decline narrowing to -3% and -4% YoY in 3Q22E and 4Q22E, respectively.
• Valuation:
  • Current P/E is 16.2x FY23E, close to 1-sd below 3-year average.
  • Target price of HK$13.93 is based on a 20x FY23E P/E.
  • The report views the risk-reward as attractive and maintains a "BUY" rating.

Shareholding and Performance

• Shareholding Structure:
  • Lin Bin: 8.6%
  • Smart Mobile Holdings Ltd: 8.5%
• Share Performance:
  • 1-month: -9.8%
  • 3-months: +5.2%
  • 6-months: -27.8%

Key Figures

• Revenue Trend: Shows a decline from 2021 to 2022, with a projected recovery in 2H22E.
• Margin Trend: Gross margin and net margin decreased, but operating margin improved.
• Smartphone Shipment Forecast: Expected to remain stable in 2H22E.
• Global Smartphone Market Share: Xiaomi is a key player in several markets.
• MIUI MAU Growth: Strong growth in the MIUI user base.
• P/E and P/B Bands: Indicates valuation is below average, with potential upside.