Xiaomi (OTC: XIACF; HKEX: 01810) stock dropped again on Tuesday (-0.34%) after it started a day in green.
China Merchant Securities analyst, however, still believes in Xiaomi and they issued a “buy” on Xiaomi with a price target of HK$32.00 per share.
Here is why CMS is still positive on Xiaomi stock.
CMS analyst thinks that the fact Xiaomi filed legal proceedings for DoD blacklist removal is a positive starting step towards a solution.
Xiaomi announced Jan. 31 that it has filed legal proceedings against the US Department of Defense (DoD) and Department of Treasury (DoT). The company views the US DoD designation of Xiaomi as a Communist Chinese Military Company to be factually incorrect and without legal due process. Xiaomi therefore is taking legal actions remove its designation, thus to prevent irreparable harm to the company and shareholders.
While uncertainties remain, CMS believes Xiaomi is taking a positive starting step towards a solution. Litigation may be a faster approach to remove Xiaomi from the DoD blacklist before the investment restriction begins on Mar 15. Analyst notes Xiaomi is preparing to take further action if the Court dismisses the case.
Meanwhile, CMS believes that the investment restriction has no fundamental impact to Xiaomi’s operations, as the DoD list does not restrict usage of US technology.
CMS remains positive on the company, as they believe the incident does not impact Xiaomi’s business fundamentals. Its smartphones momentum remains strong (+32% yoy in 4Q20, ranking No.3 with 11% market share), while its recent capital increase helps funding its expansion into overseas markets. They believe the company is well positioned of capturing opportunities from 5G migration and IoT proliferation. Xiaomi shares could again attract investment in case of a DoD blacklist removal. Thus, CMS maintains a “BUY”.
According to the International Data Corporation (IDC) 4Q2020, China’s smartphone market shipments were approximately 86.4 million units, a slight increase of 0.3% over the same period in 2019.
Apple’s 4Q2020 deliveries jumped from fourth in the previous year to second, shipments reached 16.7 million units, a year-on-year increase of 34.7%; the largest increase was Xiaomi (01810), with shipments of 11.8 million units, a 48% year-on-year increase. Xiaomi shipped 39 million mobile phones throughout the year. A slight decline of 2.5% year-on-year.