Smartphone sales set to recover in 2H22F
? 1Q22 NP fell 53% yoy due to poor China SP market and logistics disruption.
? We expect sequential SP sales improvement qoq in the rest of FY22F due to
easing Omicron cases in China and improving production and logistic issues.
? Reiterate Add. Target price HK$19.84 is based on 20x FY23F P/E.
1Q22 net profit fell 53% yoy due to poor China SP market
Xiaomi Corporation’s 1Q22 adjusted net profit (non-IFRS) fell 53% yoy to Rmb2.86bn, in
line with our and market’s expectations, given the 22% decline in smartphone (SP)
shipments and 3.0%-pt GPM erosion. 1Q22 revenue decreased by 5% yoy to Rmb73.4bn
due to production and logistics challenges in China, offset by growth in IoT products (+7%
yoy) and Internet services (+8% yoy). 1Q22 net profit formed 16% of our FY22F forecast.
We deem it to be in line, as we expect sequential improvements in quarterly SP sales.
Smartphone sales likely to increase to c.45m units in 2Q22F
1Q22 SP shipment fell to 38.5m units (-22% yoy), dragged down by poor SP demand in all
key regions: China, India and the EU, no thanks to a weakened macro economy, persistent
4G chipset shortages, and the Ukraine-Russia war. We expect better SP sales of c.45m
units (-15% yoy) in 2Q22F, underpinned by China’s 618 shopping festival, easing 4G
chipset shortage, and the launch of Redmi K50-series (gaming phone) and Xiaomi Mi12-
series (high-end segment). We expect Xiaomi FY22F SP shipment to be flat at 190m units,
as we expect stronger shipments with c.50m units in 3Q/4Q22F (c.+14%/14% yoy) due to
containment of the Omicron outbreak in China, improvement of production and logistic
disruptions, and stable overseas shipments (India, the EU and LATAM). More importantly,
we believe SP ASP will increase by 7% yoy in FY22F, lead by stronger premium phones
sales in China and the EU.
IoT revenue to achieve solid growth of 14% yoy in FY22F
IoT revenue grew 7% yoy to Rmb19.5bn in 1Q22, led by TV, TWS earbuds, home
appliances and tablets, while GPM reached a record high of 15.6% (+1.1% pts yoy), thanks
to softened TV panel prices. We expect IoT revenue to maintain a solid growth of 14% yoy
in FY22F, driven by smart TVs, smart watches and tablets, underpinned by overseas
distribution channel expansion, especially in the EU and Southeast Asia.
Internet services revenue to accelerate in 2H22F
Internet service reached Rmb7.1bn (+8% yoy) in 1Q22, driven by advertising (+14% yoy)
and gaming (+3% yoy). GPM declined 1.6% pts yoy (-5.3% pts qoq) to 70.8% due to a
decrease in pre-installed apps revenue. Overseas business accounted for 22% of 1Q22
segment revenue, thanks to rising monetisation. We estimate Internet services revenue to
accelerate in 2H22F and grow by 13% yoy in FY22F, driven by advertising business,
thanks to a stable MIUI user base growth and fast-growing international business.
Reiterate Add; target price at HK$19.84
Reiterate Add as we believe Xiaomi will continue to gain global SP market share and rising
premium phone sales due to continuous domestic and overseas channel expansion. Our
TP HK$19.84 is based on 20x FY23F P/E, at par with its closest China Internet peers.
Share price catalysts include SP shipments resuming growth and stable monetisation in
the MIUI ecosystem. Risks: sustained supply chain constraints and weak global SP sales.