- November 26, 2021
We just published Q3’FY21 results review of Xiaomi (1810 HK) to maintain our Buy rating with PT of HK$38.3.
For FY22e, we see more growth potential coming from: 1) supply chain constraints will be easing, which will unleash unsatisfied demand; 2) growing hardware installed base, in particular in high-end segment, will bring more upside in high margin internet services. The stock is now trading below its historical average of 22x P/E, indicating a big room for valuation expansion, in our view. We maintain Buy rating on Xiaomi with PT of HK$38.3 on 34x FY22e P/E.
- Smartphone – ST headwind in supply but in LT solid market position: Xiaomi’s total shipment reached 44mn units globally in Q3, down 6.6% YoY. In Q3, smartphone revenue was RMB47.8bn, up 0.5% YoY, with a gross margin of 12.8%, up 4.4ppt YoY and 1ppt QoQ. Given supply chain constraints easing next year, continuous offline channel expansion, and solid position in high-end segment, we expect Xiaomi’s smartphone shipment will grow by more than 20% YoY in FY22e.
- AIoT & internet service – growing H/W installed base potential: AIoT revenue was up 15.5% YoY to RMB20.9bn. No. of AIoT platform devices exceeded 400mn units as of 30 Sep. Internet services revenue grew by 27.1% YoY to RMB7.3bn with a gross margin of 73.6%, compared to 60.4% in Q3 last year. Thanks to growing H/W installed base, global MIUI MAU exceeded 500mn for the first time as of 22 Nov. The fast-expanding hardware sales will continue to fuel growth of high margin internet services, in our view.
- Q3 results recap: Total revenue was RMB78.1bn, up 8.2% YoY/down 11.1% QoQ due to the global supply constraints. Gross margin expanded to 18.3% compared to 14.1% in Q3 last year, helped by GPM expansion in internet service and favorable revenue mix of smartphone. Opex ratio was up to 12.0% from 11.3% last quarter, reflecting the continued offline channel expansion and R&D investment in smartphone and EV. Non-IFRS net profit came in at RMB5.2bn, up 25.4% YoY.
- FY21 ets. changes: We slightly lower our ets. of Xiaomi’s FY21e smartphone shipment from 199mn units to 190mn units. As the high-end segment was less affected than the low-end segment and Xiaomi’s solid position in the high-end segment, we raise Xiaomi’s FY21e est. of gross margin (17.9% vs prev. 15.6%) and EPS (RMB0.82 vs. prev. RMB0.71) accordingly to reflect the favorable revenue mix change.
