Xiaomi delivered strong 4Q20 adj. net profit growth of 37% YoY to RMB3.2bn, 11% above consensus and 4% below our estimate, thanks to record-high blended GPM, higher smartphone ASP (+7% YoY) and rapid ads recovery (+23% YoY). Despite slight miss on revenue (+25% YoY) due to softer internet (gaming/fintech) and slower IoT (TV) growth, we believe continued MAU expansion, share gain in premium smartphone segment and network expansion will accelerate IoT/ internet recovery and improve profitability in 2021. In addition, we expect global channel expansion and share gain in China/Europe/LATAM will boost Xiaomi shipment to grow 37%/19% YoY to 200mn/238mn in FY21/22E. We lifted FY21-22E EPS by 9-10% for higher share gain and GPM, and raised TP to HK$34.0 based on same 35x FY21E P/E. Recommend to BUY after recent correction.
- Strong 4Q20 on better smartphone ASP and record-high GPM. We believe Xiaomi’s strong 4Q20 is a result of strong execution of multi-channel expansion, premium strategy and advertising recovery despite weaker IoT/ gaming/fintech revenue. We think smartphone’s better mix (ASP +7% YoY) and record-high GPM at 10.5% suggested Xiaomi’s share gain in premium segment (e.g. Mi 11 series), while slower internet growth at 8% YoY (vs 8% in 3Q) was due to gaming/fintech headwinds (VAS -6% YoY) in near term.
- Promising outlook: multi-channel expansion and share gain in China/ Europe/LATAM. We believe Xiaomi will accelerate smartphone share gain from Huawei and boost IoT sales growth in China/ Europe/ LATAM in 2021, driven by offline store expansion into every county in China and stronger operator partnership in Europe/LATAM. We expect Xiaomi shipment to grow 37%/19% YoY to 200mn/ 238mn in FY21E/22E. In addition, mgmt. guided higher GPM will sustain into 2021, and share gain in premium segment will improve internet monetization (ads, gaming) and profitability in 2021.
- Our FY21/22E NP are 21/18% above consensus; Raise TP to HK$34.0. We believe Xiaomi is poised to boost market share in China and outperform its Chinese peers overseas with strong AIoT product portfolio and expanding omni-channel network. We lifted FY21-22 EPS by 9-10% to reflect rapid share gain and better GPM. Our new TP of HK$34 is based on same 35x FY21E P/E. Upcoming catalysts include product launches (Mi 11 Pro/Ultra), stronger shipment growth and faster internet recovery.
