Xiaomi reported stronger-than-expected 3Q20 adj. net profit of RMB4,128 (+19% YoY), 13%/20% above our/consensus estimates, driven by strong smartphone shipment (+45%), IoT recovery (+16%) and better operating leverage. 3Q20 revenue growth of 34% YoY slightly beat, backed by 48%/16%/9% YoY in smartphone/IoT/internet. Given accelerated R&D investment, “Smartphone x AIoT” ecosystem and overseas network expansion, we expect Xiaomi to continue share gain from Huawei and smartphone shipment will grow 25%/20% YoY to 186mn/223mn in FY21E/22E. We lifted FY20-22E EPS by 1-3% for higher market share in smartphone and better operating leverage, and raised TP to HK$31.1 based on 35x FY21E P/E (prev. 25x) for sector re-rating and stronger earnings CAGR of 33% during FY20-22E.
- Strong 3Q20 on better smartphone and IoT recovery. We believe strong 3Q20 was a result of Xiaomi’s strong execution of global expansion & premium strategy and IoT recovery despite weaker internet revenue. We think smartphone’s improving mix (ASP +1.5% YoY) is a positive sign of share gain in premium segment (Mi 10 series), while internet biz delivered slower growth at 9% YoY due to weaker gaming/fintech in near term.
- Rapid share gain in China/Europe/LATAM on Huawei restriction. We believe Xiaomi will continue to benefit from Huawei’s restriction in China/ Europe in 2021 given Xiaomi’s R&D efforts, offline channel expansion in China and operator/e-commerce partnership in Europe/LATAM. Overall, we expect Xiaomi smartphone shipment to grow 38% YoY in 4Q20E, and accelerate with 25%/20% YoY to 186mn/ 223mn in FY21E/22E. In addition, we expect share gain in premium segment in China/Europe will help drive internet monetization and improve overall profitability in 2021.
- Our FY20-22E EPS are 15-18% above consensus; Raise TP to HK$31.1. We believe Xiaomi is set to boost market share in China and outperform its Chinese peers in overseas markets with stronger product portfolio and expanding omni-channel distribution network. We slightly lifted FY20-22 EPS by 1-3% to reflect rapid smartphone share gain and better GPM. Our new TP of HK$31.1 is based on higher 35x FY21E P/E (prev. 25x) given sector re-rating and stronger FY20-22E EPS CAGR of 33%, and global share gain in smartphone. Upcoming catalysts include stronger shipment growth and faster internet recovery.
