Earnings Forecast | Xiaomi's revenue expected to drop 5% in Q1

Xiaomi Group will announce its first quarter 2022 results on Thursday, 19 May and is expected by many institutions to report a slowdown in revenue, a decline in its mobile phone business and a drop in net profit due to a number of unfavourable factors.

First Quarter Revenue Estimates

• Guosheng Securities expects Xiaomi's 2022Q1 revenue to be RMB72.9 billion, down 5% YoY, and non-GAAP net profit to be RMB2.7 billion, down 55% YoY, mainly due to slowdown in mobile phone shipments and investment in car manufacturing business.

• Guotai Junan Securities expects Xiaomi's Q1 revenue to be approximately RMB73.1 billion/-5.1% and adjusted net profit to be approximately RMB2.8-2.9 billion (after taking into account investment in car manufacturing) due to multiple external factors impacting Q1.

• Huatai Securities expects Xiaomi's 1Q22 revenue and non-GAAP calibre net profit to fall by 5% and 55% year-on-year respectively, with smartphone revenue down 10% year-on-year and IoT and internet business revenue up 5%/8% year-on-year.

Mobile phone business under pressure

• Guosheng Securities said that the mobile phone business is under pressure in the short term, while the premiumization continues to advance. Xiaomi's 2022Q1 shipments are expected to be about 39.9 million units, down 19% year-on-year. Multiple factors have led to weak mobile phone shipments. 1) Supply side, shortage of SoC supply. 2) Demand side, due to domestic epidemic, international geopolitical situation and other factors, mobile phone consumer demand may decline. 3) Competition side, domestic market glory and other competition intensified. Guosheng Securities expects Xiaomi's sales to be under pressure in 2022, but premiumisation will help boost ASP.

• Guotai Junan expects ASP to continue its upward trend and reach about 1200 yuan in Q1, so it expects Q1 mobile phone business revenue to be about 46.8 billion yuan/-9%; gross margin is expected to be about 10%, compared with 12.9/11.8/12.8/10.1% in 2021Q1-Q4 respectively. 

Looking ahead to the full year, with the effective control of the epidemic, the implementation of more promotional fee policies, and the promotion of high-end machine strategy, the annual shipment volume will be approximately 180 million units, the same as the previous year.

AIoT

• Xiaomi's AloT business will maintain healthy growth, with short-term volatility outside of China, according to Guosheng Securities. The overall AIoT business is expected to maintain healthy growth in Q1, but overseas markets may be affected by the Russia-Ukraine conflict and logistics factors on related consumer demand. 2022 is expected to maintain solid growth in Xiaomi's IoT business, driven by new products and operations.

• Guotai Junan expects loT business Q1 revenue to be around 19.7 billion yuan/+8%, with growth slowing significantly year-on-year and sequentially, mainly due to the impact of declining overseas demand and domestic epidemic disturbances; however, overall gross margin is expected to improve slightly to 16-17%. 

Looking ahead to the full year, the IoT business is expected to improve quarter-on-quarter as global shipping prices fall and the epidemic is effectively controlled.

Internet

• Guosheng Securities said that the domestic business has been under pressure, but the overseas business is expected to grow at a higher rate. The growth of Xiaomi's domestic internet business is expected to slow down in Q1 due to domestic advertising demand and epidemic factors, but overseas internet may still maintain a high growth rate. Internet revenue is expected to maintain healthy growth in 2022, driven by 1) continued expansion of MIUI users and 2) high growth in overseas internet business.

• According to Huatai Securities, Xiaomi's Q1 Internet revenue is expected to be approximately RMB7.1 billion/+8.1%, but the growth rate is expected to slow down significantly year-on-year and year-on-year; the overall gross margin is expected to remain at approximately 70%.

Looking forward to the full year, although domestic growth is affected by policy and other factors, thanks to the global MIUI and ARPU steady growth, overseas is expected to continue to perform well.

Investment advice

• Guosheng Securities expects Xiaomi Group's total revenue to be RMB 351.9/426/495.5 billion and non-GAAP net profit to be RMB 11.0/16.4/2.14 billion in 2022-2024. Based on Xiaomi's core business (excluding car manufacturing) 20x2023e P/E, combined with investment value, Xiaomi is given a target price of HK$21.9, maintaining a "buy" rating.

• Guotai Junan lowered Xiaomi's forecast 2022-2024 adjusted net profit to RMB16.2/201/24.8bn (from RMB20.1/24/28.3bn), a growth rate of 26/24/24%, maintaining Hold. Considering the weak smartphone demand, Huatai Securities adjusted Xiaomi's 2022/2023/2024 non-GAAP EPS forecast to RMB0.61/0.82/0.88 (Previous: RMB0.88/0.91/1.0). Maintain "Buy" rating and lower SOTP-based target price to HKD16.00 (previously HKD22.00), corresponding to 23x 2022 forecast PE. 

Stable business, continued investment to build resilience 

Huatai Securities said it sees Xiaomi's efforts in the following areas.

1) optimise product mix to improve average price and internet service revenue amid chip shortages and a weak economy; 2) expand the product categories and market share of its AIoT business; and 3) continue to invest in its electric car business. Xiaomi's EV R&D expenditure is expected to be approximately RMB400 million in 1Q22.

It is believed that Xiaomi's solid operations will help the company maintain resilient performance in an overall weak market and build long-term growth potential.

Guotai Junan said it is bullish on the progress of the construction of Phase II of the Smart Factory and intends to continue to repurchase shares to demonstrate its confidence.

1) The second phase of the Smart Factory is scheduled to commence production at the end of 2023, with an expected annual production capacity of 10 million high-specification mobile phones, the majority of equipment and systems are self-researched, which will further enhance the strength of intelligent manufacturing; 2) We expect Xiaomi 12 performance is still worth looking forward to, looking forward to the domestic 618 shopping festival after the epidemic control ushered in a round of consumer recovery; 3) car manufacturing business is steadily advancing, has disclosed a number of patent information 4) We intend to repurchase shares in the open market from time to time at a maximum amount of HK$10 billion, demonstrating our confidence.

source: sina