3Q22 Results Preview: Still Deteriorating yoy But Stabilising Sequentially
Xiaomi will report its 3Q22 earnings on 23 Nov 22. We expect the company’s revenue to grow 10% yoy but remain flat qoq, and adjusted net profit to decline both 62% yoy and 6% qoq. While the sharp yoy decline is well-expected, the sequential decline should have stabilised, while inventory level has been improving since end-2Q22. Maintain BUY but trim target price to HK$11.30.
WHAT’S NEW
• 3Q22: Earnings decline should have stabilised. We expect 3Q22 revenue to decline 9.9% yoy and remain largely flat qoq at Rmb70.3b, blended gross margins to fall 1.3ppt yoy but recover 0.2ppt qoq, and adjusted net profit to decline 62.2% yoy and 5.9% qoq to Rmb1,958m.
• Smartphone shipment remained sluggish as expected. As reported by IDC, Xiaomi Corp’s (Xiaomi) smartphone shipment in 3Q22 declined 8.6% yoy but grew 2.5% qoq to 40.5m units, which is below our estimate of 43m units, although not entirely unexpected given the ongoing destocking across the smartphone value chain and poor end-demand in China and Europe, the two largest markets for Xiaomi. We expect ASP to marginally decline by 2% on higher mix from low-end smartphone sales in India and LATAM, while its margins should recover slightly on less promotion events. As such, we estimate the segment’s revenue to decline 10.2% yoy but remain stable qoq at 1.6% growth to Rmb43b, while margins should decline 3.7ppt yoy but recover 0.4ppt qoq to 9.1%.
• We see a parallel in the IoT & lifestyle segment. We are expecting an 8% yoy decline in the segment’s revenue to Rmb19b in 3Q22, on the back of sluggish demand for wearables and home appliances in domestic and foreign markets, as well as the ASP declines in key IoT products such as TVs. On the bright side, we are expecting gross margins to remain stable at 14.5% (vs 14.3% in 2Q22), thanks to moderating component costs and less promotional events.
