AMTD Research | Xiaomi (1810 HK): Impressive overall Q2 results, continued expansion in premium/overseas market drives future growth, reiterate Buy

We just published Q2’FY21 results review of Xiaomi (1810 HK) to reiterate our Buy rating with PT of HK$38.3.

Xiaomi reported impressive Q2 results. Total revenue grew strongly by 14.2% QoQ/64.0% YoY to a record RMB87.8bn, driven by continuing momentum across all sectors. Gross margin was 17.3% compared to 14.4% in Q2’FY20, helped by GPM expansion in internet services. Opex ratio was up slightly to 11.3% from 10.6% last quarter, reflecting the continued offline channel expansion efforts and R&D investment. Non-IFRS net profit came in at RMB6.3bn, up 4.2% QoQ/87.4% YoY. In a long run, we see future upside coming from: 1) Xiaomi’s smartphone and AIoT products are gaining a stronger position in the premium market, which will fuel the growth of high-margin internet services sector; 2) continuing momentum in higher growth potential overseas markets driven by solid demand. Therefore, we reiterate Buy rating on Xiaomi with PT of HK$38.3 on 45x FY21E P/E on back of Xiaomi’s future ambitions and its long-term commitment.

• Smartphone – record quarter with upside in LT market share gaining: According to Canalys, total shipment reached 52.8mn units globally, up 86.8% YoY and ranking No. 2 for the first time with a market share of 16.7%. In Europe, Xiaomi ranked No.1 for the first time with a market share of 28.5%; in China, market share has been improved to 16.8% from 10.3% in Q2’FY20 underpinned by continued offline expansion efforts.

• AIoT ecosystem – capturing the solid demand in premium/overseas market: This sector maintained robust growth for the second consecutive quarter. Revenue was up 35.9% YoY to RMB20.7bn. The strength mainly came from the expansion into the premium market and solid demand in overseas market, where revenue was up 93.8% YoY.

• Internet services – fueled by increase sales in premium hardware market: Internet services sector is gathering steam. Revenue grew by 19.1% YoY to RMB7.0bn. Gross margin rose to 74.1% vs. 72.4% last quarter and 60.3% in Q2FY20, thanks to the increase in sales of premium hardware.