Slower smartphone shipments in FY22F
? 1Q22F adjusted net profit likely dropped 54% yoy to Rmb2.8bn due to a 20%
decline in smartphone shipments and lower GPM in Internet services.
? We believe FY22F smartphone shipments will stay flat at 190m units due to
the weakened China smartphone market and persistent chipset shortages.
? Reiterate Add on Xiaomi as it continues to gain share in global smartphone
market. TP lowered to HK$19.84 to reflect weaker smartphone sales outlook.
1Q22F smartphone shipments fell 20% yoy on supply chain issues
We expect Xiaomi’s smartphone shipments to have fallen by 20% yoy to c.39m units in
1Q22F due to supply chain issues and poor sentiment in China’s smartphone market amid
the Omicron outbreak in China and persistent 4G chipset shortages that affected overseas
markets’ (Europe, India, Southeast Asia) low-end segment sales. However, we expect
Smartphone revenue to have declined by only c.13% yoy, supported by c.10% ASP growth,
thanks to better mix. We also believe smartphone GPM stayed at a health 10% (10.1% in
4Q21, 12.8% in 3Q21) due to higher contributions from premium phones and stronger
overseas sales. We expect the LATAM and EU markets to remain the key shipment drivers
in FY22-23F, while smartphone sales in China shift towards to the high-end segment. We
believe Xiaomi’s smartphone premium strategy will result in sustained ARPU
improvements in Internet services over the next few years given that premium users
typically spend more time and pay more for apps on their phones.
Cut smartphone shipment forecasts and lower EPS in FY22-24F
We revise downwards our FY22F/23F/24F smartphone shipment forecasts to 190m/230m/
265m units (0%/+21%/+15% yoy) to reflect sustained supply chain issues and the
weakened China smartphone market. As a result, we cut our FY22F/23F/24F EPS
forecasts by 21%/25%/24% due to lower smartphone sales, lower GPM in Internet services
and higher R&D expenses for new business (electric vehicles).
1Q22F net profit likely dropped 54% yoy on weak smartphone sales
We forecast 1Q22F adjusted net profit (non-IFRS) to drop 54% yoy (-37% qoq) to
Rmb2.8bn, driven by a 6% decline in revenue and 0.7% GPM contraction, mainly dragged
down by weakened smartphone sales (-13% yoy). We expect an 8% revenue growth in
1Q22F in the IoT segment due to strong TVs sales but offset by slower growth in the EU
market due to the Russia-Ukraine war. We also expect Internet services to achieve a 9%
revenue growth in 1Q22F despite the Omicron outbreak in China, thanks to stable
advertising income. Nevertheless, we believe GPM in Internet service will be lower at
c.70% due to decrease in pre-installed apps revenue.
Reiterate Add; target price lowered to HK$19.84
We reiterate Add on Xiaomi as we believe it will continue to gain global smartphone market
share and monetise its ecosystem. We cut our TP to HK$19.84 on lower EPS, still based
on 20x FY23F P/E, a 10% premium over its closest China Internet peers. Share price
catalysts include recovery of smartphone shipments and easing of supply chain
constraints. Downside risks include intensifying smartphone competition and sustained
weak smartphone sales in China.