XOV shipments to outpace industry growth

■ We forecast global smartphone shipments for Xiaomi, Oppo and Vivo (XOV) growing by 15% yoy in 2022F, outpacing the industry’s growth rate of 5%.
■ We expect mid-range models (US$300-600) to lead XOV’s charge into EU, while value-for-money (US$100-299) phones could be the drivers in LATAM.
■ Our sector top picks are Sunny Optical, Xiaomi and Will Semiconductor.

XOV smartphone shipments to outpace industry growth in 2022F

We estimate the combined shipments of China’s top 3 brands, Xiaomi, Oppo and Vivo (XOV), will grow 15% yoy to c.544m units in 2022F, outpacing the industry’s growth rate of 5% (source: Counterpoint), driven by 1) easing chip shortages (we expect chip supplies to normalise in 2H22F), 2) accelerating 5G phone spec upgrades, and 3) their continuous offline and online channel expansion in overseas markets.

Xiaomi/Oppo/Vivo shipments likely to grow 31%/25%/22% in 2021F

According to Counterpoint, XOV shipments jumped 37% yoy in 9M21, helped by lower Huawei shipments and expanded market shares in EU, Southeast Asia and LATAM. Xiaomi’s, Oppo’s and Vivo’s 9M21 shipments grew 42%, 41% and 32% yoy, respectively. We estimate XOV 2021F shipments to grow 29% yoy to c.472m units (X/O/V shipments likely to grow 31%/25%/22%), driven by demand recovery as the Covid-19 pandemic eases, market share gains from Huawei and Samsung, and rapid overseas expansion.

Overseas sales continue to be XOV’s shipments driver in 2022F

XOV’s overseas shipments grew by 34% yoy in 9M21 and made up 58% of XOV’s total shipments in 9M21 (59% in 9M20), driven by rapid market share gains in EU, India and LATAM. We believe overseas smartphone sales will continue to help XOV grow their business in the near future at the expense of Huawei’s shipment declines and Samsung’s market share losses. We estimate XOV’s overseas shipments to grow 23%/19% yoy in 2022F/2023F, driven by market share gains in EU and LATAM, and a stable market share in India thanks to their continuous affordable and innovative new model launches.

ASP growth is key to component makers’ earnings acceleration

We think smartphone ASP growth is more important than shipments growth for XOV as it represents rising demand for high-end, high-margin sophisticated products and results in stronger earnings for handset component makers. According to Counterpoint, XOV’s smartphone ASP was US$229 in 9M21, up 13% yoy, underpinned by more mid-range 5G phone promotions in China and India, and lower sales of low-end 4G phones on the lack of 4G chipsets. Xiaomi’s 9M21 ASP grew 9% yoy due to higher contributions from the premium segment (strong market share gains in China). Oppo’s 9M21 ASP rose 10% yoy due to more high-end and mid-range model sales in EU and India. Vivo’s ASP rose 22% yoy, mainly due to the robust performance of its mid-range segment sales in China.

Our sector top picks are Sunny Optical, Xiaomi and Will Semi

We maintain Overweight on the China smartphone sector as we believe the ongoing smartphone specification upgrades will result in stable global smartphone shipments growth. Our sector top picks are Sunny Optical, Xiaomi and Will Semiconductor for their sustained market share gains and continuous new product launches.