- August 31, 2020
As a clearer product strategy and solid execution are playing out, Xiaomi is becoming more attractive in 5G era. In particular, in the face of the challenging pandemic, Xiaomi delivered a solid 2Q results. We reiterate Buy on Xiaomi and lift PT to HK$30.5 by applying its historical high of 45x P/E on FY21E, which will be further supported by index inclusion and share buybacks, in our view.
Product strategy:
- Smartphone: share gain and localization with 5G & premium strategy
- according to Canalys, Xiaomi smartphone shipments grew by 64.9% YoY in Europe, achieving a total market share of 16.8%, and ranking top 3;
- we expect Xiaomi could continuously gain market share both in Europe and China (localization) markets. Coupled with econ recovery, we raised Xiaomi smartphone shipment forecast to 169mn units in FY21E;
- IoT & lifestyle: “Smartphone x AIoT” – LT growth driver
- This segment reported revenue of RMB15.3bn, recovered sequentially by 17.5%;
- No. of AIoT platform devices continued to grow strongly by 38.3% YoY to 271mn units as of 2Q;
- Internet service: monetization diversification in progress
- Internet service revenue grew by 29.0% YoY to RMB5.9bn in 2Q and Advertising/online game revenue was up 23.2% YoY/54.5% YoY respectively;
- MIUI MAU increased by 23.3% YoY to 343.5mn with an ARPU of RMB17.2;
- TV internet services revenue grew robustly with MAU of smart TVs and Mi Box reached 32.0mn in Jun, up 41.8% YoY.
More upside supported by index inclusion:
With trading volume expanding and market cap increasing, Xiaomi, the leader of tech stocks in HK market, has entered several important indexes: 1) included in Shanghai-Hong Kong Stock Connect on 28 Oct 2019; 2) included in Hang Seng TECH Index launched on 27 July 2020; and 3) will be included in Hang Seng HSI Index & Hang Seng China Enterprises Index on 7 Sept 2020. As tech stocks continue to gather momentum with the increasing proportion in HK market, we believe Xiaomi will be likely included in different kinds of benchmark indexes in the future. Thus, we expect Xiaomi has more upside from the index inclusion.
