Xiaomi Hit by Smartphone Slump and New Product Investment

Xiaomi’s 01810 2022 result was negatively affected by one of the weakest smartphone markets in many years and continued investment into new products such as electric vehicles that are yet to launch. The volatility in this industry was highlighted with Xiaomi’s 34% revenue growth and 79% operating profit growth (ex-investment gains and losses) in 2021, followed by a revenue decline of 15% and operating profit down 72% year on year in 2022, with fourth-quarter 2022 revenue down 23%. Full-year research and development expenses were up 22% to CNY 16 billion driven in part by spending CNY 3.1 billion on smart electric vehicles and other growth initiatives such as robotics. Xiaomi is on track for its first smart EV to be mass produced in the first half of 2024.

We reduce our fair value estimate to HKD 12.40 from HKD 14.50 previously based reduced revenue and operating profit margins forecasts with revenue forecasts in 2023 and 2024 reduced by 11% to 13% and operating profit forecasts reduced by 40% to 50%. We see the company as fairly valued at current levels.

Xiaomi’s total number of smartphones sold globally decreased 21% year on year with a 1.2% increase in average selling price, or ASP, leading to an 20% decline in smartphone revenue. In terms of shipments, the global smartphone market declined by 11% for the full year and 17% for the fourth quarter. Xiaomi’s market share declined to 12.7% in 2022 from 14.1% in 2021, but it retained its number 3 position in the global market. Xiaomi indicated that it had yet to see any signs of recovery and was hoping this would happen in the second half of the year.