We remain positive on Xiaomi’s strong 5G product portfolio and potential share gain from Huawei in 2H20E. During recent 618 shopping festival from 1 Jun to 18 Jun, Xiaomi’s total sales amount exceeded RMB10bn, up 54% YoY. JD’s Top 3 best-selling 5G phones on 18 Jun were Redmi K30 Pro, Xiaomi Mi 10 and Redmi K30, beating Top 4-9 handset models from Huawei. Despite near-term impact on COVID-19 and China-India dispute, we believe Xiaomi is well-positioned to benefit from China 5G tailwinds and post-virus demand recovery in 2H20E. We adjusted FY20-22E EPS by -11%/-4%/+2%, and maintain BUY with new TP of HK$15.7.
- Xiaomi’s 618 sales exceeded RMB10bn, up 54% YoY. Xiaomi recorded total platform sales of above RMB10bn during 6.18 shopping festival, up 54% YoY from last year’s RMB6.45bn, and it also took 256 first place on the three platforms of JD, Tmall and Suning. We believe Xiaomi’s success was driven by a strong 5G market position with a competitive product portfolio covering mid-tier to premium 5G smartphones, smart TV and other IoT products.
- Redmi K30 Pro and Xiaomi Mi 10 are the most popular 5G phone on JD. As an early mover in China 5G market, Xiaomi has launched two flagship 5G models in 1H20 (high-end Xiaomi Mi 10, entry-level Redmi K30 Pro), and both were ranked Top 2 best-selling 5G phone on JD’s 618 festival, surpassing Huawei’s P40 Pro and Honor V30 Pro. We think Xiaomi’s solid execution of 5G strategy and strong value proposition will continue to enhance its 5G leadership in China market.
- 2Q20 impacted by COVID-19 and China-India dispute. While number of COVID-19 cases in India climbed to 425,000 on 22 Jun, 4th highest in the world, we expect Indian smartphone market will remain challenging in 2Q/ 3Q20 given partial lockdown, supply chain disruption and recent China-India dispute. As the largest smartphone brand in India (30% share in 1Q20), Xiaomi is not immune to the impact in our view. We expect its smartphone sales to decline 14% YoY in 2Q20E and recover with 2%/13% YoY in 3Q/4Q20E on China 5G demand and share gain from Huawei overseas.
- Maintain BUY on 5G strength and share gain in 2H20E. We believe Xiaomi will outperform its peers with a solid 5G product roadmap. We revised FY20-22E EPS by -11%/-4%/+2%, mainly to reflect India impact in 2Q20, and adjusted TP to HK$15.7 based on same 20x FY21E P/E. Catalysts include 5G product launch, demand recovery and HSI inclusion.
