Xiaomi delivered in-line 4Q19E revenue with 27% YoY, while adj. NP grew 27% YoY, 6%/19% above our/consensus estimates, thanks to stronger smartphone overseas and higher smartphone/internet GPM. To reflect COVID-19 impact on global smartphone/ IoT demand and slower China ads/fintech sales, we revised down FY20/21E EPS by 7%/10% and trimmed TP to HK$10.7 with lower 20x FY20E P/E (prev. 25x). We remain positive on Xiaomi’s strategic roadmap in 5G cycle, but maintain Hold rating mainly due to COVID-19 uncertainty.
- Solid 4Q19 with gradual margin recovery. Xiaomi posted 27% YoY revenue growth in 4Q19, driven by solid growth in IoT/internet services (+31%/42% YoY) and smartphone recovery (+23% YoY). GPM improved to 13.9% (vs 12.7% in 4Q18) with better mix in smartphone/internet segments. By region, China revenue recovered to 17% YoY (vs -4% in 3Q19), while overseas revenue accelerated to 41% YoY (vs 17% in 3Q19).
- Smartphone: emerging impact in India/Europe despite China recovery. Mgmt. stated production now returned to 80-90% of normal capacity by end-March, while China demand also rebounded to 90% of Jan level. However, mgmt. expected COVID-19 impact to emerge overseas in 2Q20E, especially India/Europe. We estimate smartphone revenue will decline 10%/10% YoY in 1Q/2Q20E and recover to 6%/10% YoY in 3Q/4Q20E on 5G demand.
- Internet: China fintech/advertising weakness in near term. In view to weaker China ads budget and consumer finance amid COVID-19 in 1H20E, we believe internet revenue will grow 7%/6% YoY in 1Q/2Q20E (vs 12%/41% in 3Q/4Q19). We also think GPM should hold well above 60% in FY20/21E.
- Well-positioned to capture 5G cycle. We are positive on Xiaomi’s focus on R&D investment and overseas expansion in FY20-21E. Although its smartphone/IoT segments will be dragged by COVID-19 in near term, we expect rapid demand recovery once overseas situation stabilizes given solid product pipeline and distinct competitive edge in smartphone/IoT market.
- Maintain Hold with new TP of HK$10.7. We lowered FY20/21E EPS by 7%/10% mainly to reflect COVID-19 impact on smartphone/IoT segments. We maintain our HOLD rating given COVID-19 uncertainties. Our new TP of HK$10.7 is based on lowered 20x FY20E P/E (vs prev. 25x). Upside risks include better shipment and margin recovery.
