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Smartphone sales remain resilient in FY22F

■ 3Q21 non-IFRS net profit rose 25% yoy to Rmb5.18bn. 9M21 NP met 82% of our FY21F. We deem this in line as we expect a solid quarter in 4Q21F.
■ We expect smartphone shipments to rise 17% yoy to 225m units in FY22F, driven by overseas carrier channel and China offline channel expansion.
■ Reiterate Add. Our TP of HK$34.13 is based on 25x FY22F P/E.

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Solid 3Q21 results though chip shortage dragged smartphone sales

Xiaomi non-IFRS net profit (adjusted net profit) rose 25.4% yoy (-18% qoq) to Rmb5.18bn (c.5%/7% above our/consensus forecast) in 3Q21, driven by 1) robust performance in Internet services (+27% yoy) and IoT (+16% yoy), and 2) strong GPM in Internet services (+13% yoy) and smartphone (+4.4% pts yoy). Monthly active users (MAU) hit 486m in 3Q21 (+32% yoy, +7% qoq) on growing smartphone shipments.
Xiaomi shipped 43.9m smartphone in 3Q21, down 5.8% yoy (-17% qoq) due to serious chip shortage. However, smartphone GPM hit 12.8% in 3Q21 due to reduced promotions and higher contribution from premium segment. Management guides for smartphone shipments of 190m units in 2021F and expects strong shipment growth in 2022F due to easing chip shortage.

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Smartphone shipments to rise 31% in FY21F and 17% in FY22F

Smartphone ASP rose 7% yoy in 3Q21 (flattish in 1Q/2Q21) on higher contribution from premium phones such as Mi11 Ultra/Mi11 Pro and Mi Civi series (Rmb3,000+/€300+). We expect 4Q21F smartphone shipments to recover to c.46m units (+8% yoy), supported by festival promotions in China and India. We expect Xiaomi to ship 190m/225m smartphones (+31%/+17% yoy) in FY21F/22F, underpinned by China’s offline channel expansion and carrier channel expansion overseas, especially in the EU and LATAM markets and easing chip shortage. We expect chip supply to normalise in 2H22F.

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Internet services revenue to accelerate on stronger monetisation

3Q21 Internet services revenue jumped 27% yoy, led by advertising (+44.7% yoy), thanks to expanding user base and higher contribution from premium smartphone users. ARPU decreased by 1% yoy in 3Q21, improving from -9% yoy in 2Q21, thanks to rising revenue from overseas markets. Overseas Internet services revenue surged 110% yoy to Rmb1.5bn in 3Q21 (20% of total Internet services revenue). We expect ARPU to go up in FY22F due to stronger monetisation in overseas market as Xiaomi expands its global business partnerships and offers new Internet content and services.

Reiterate Add with a target price of HK$34.13

We reiterate our Add call on Xiaomi as we believe that it will continue to gain global smartphone market share and monetise its Mi user interface (MIUI) ecosystem. Our TP remains at HK$34.13, based on 25x FY22F P/E, a 20% premium to its closest China Internet peers, reflecting favourable smartphone market outlook. Re-rating catalysts are sustained robust smartphone sales, stable MIUI MAU growth and stable GPM outlook in Internet services. Downside risks: keener smartphone competition and poor monetisation
in MIUI ecosystem.

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