A Global Smartphone And AI-IoT Powerhouse

We expect Xiaomi to outperform its peers in the global smartphone market through competitive model launches and migration to the high-end segment, while its rapid offline channel expansion in China will allow market share wins over Oppo and Vivo in the competitive domestic market. Its unparalleled AI-IoT ecosystem will remain a major competitive edge against its peers, providing synergy and cross-selling opportunities between its hardware products. Initiate coverage with BUY. Target price: HK$21.80.

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  • • Share gains attest to strong product competitiveness. Xiaomi Corporation’s (Xiaomi) global smartphone market share spiked 3.2ppt yoy in 9M21 to 14.7% on the back of Huawei Technologies’ retreat, finding success in regions including Europe, Latin America (LATAM) and China. Although Xiaomi faced headwinds in China in 3Q21 due to a chip shortage and Honor’s resurgence, its outperformance vs close competitors − such as Guangdong Oppo Mobile Telecommunications Corp (Oppo), Vivo Communication Technology Co (Vivo) and Samsung Group (Samsung) − in the global market is a clear showcase of Xiaomi’s strong product competitiveness and exceptional execution capabilities in multiple regions.
  • • Growth in overseas markets will remain unhindered despite domestic competition. We believe competition will be largely confined to China, as Honor cannot leverage on Huawei’s brand name or its close relations with domestic dealers in overseas markets. Also, Xiaomi’s success overseas was primarily based on its strong execution capabilities across multiple regions during Huawei’s downfall, so it will be difficult for latecomers to replicate Xiaomi’s success story without such a significant event. As such, given the limited brand differentiation among low-end and mid-range smartphone models, Xiaomi’s established overseas sales channel and brand image will offer it advantages over its peers. This in turn allows Xiaomi to continue capitalising on its expanding foothold in key overseas regions such as Europe, LATAM and India.
  • Offline expansion and migration to high-end segment will be the key drivers. Amid intensifying competition in China, Xiaomi and other online-focused brands like realme, Honor and Oneplus have invested heavily in expanding in offline channels and high-end/premium markets. Xiaomi tripled its store count in 2021 to >10,000 stores, and found success in the >Rmb3000 price range before seeing its market share eroded by Honor in 3Q21. Nevertheless, we expect online brands to be the eventual winners with their efficient and digitalised offline channels while offline giants Vivo and Oppo will be the ultimate losers due to their less efficient incumbent offline channels.