On January 6, Xiaomi stock recorded a biggest single-day fall in a month, following UBS research report. In this report UBS lowered the target price of Xiaomi Group shares (01810.HK) $HKD 23.00 to $HKD 22.00; the rating was downgraded from “Neutral” to “Sell”.
According to the bank, Xiaomi’s share price rose 208% last year, outperforming the MSCI China IT Index by 132%. UBS believes that the stock’s 2021/22 forecasted P/E ratios of 42 times and 33 times have reflected the upward profitability brought about by the recovery of Internet services.
The bank estimates that Xiaomi will resume the monthly active user growth in China this year, but there are still a number of unfavorable factors to be aware of. On the one hand, China’s mobile game economy is moving away from app store operators, on the other hand, national financial technology supervision, and the company’s monthly active user expansion in Europe, etc. The bank’s forecast of the company’s Internet service revenue is significantly lower than market expectations. In addition, it is estimated that investors are only willing to invest in the company’s business growth at a price-to-earnings ratio of 30 times.
The bank has a positive view on the company’s hardware momentum and market share, but believes that it is not the main net profit growth engine. UBS has increased the company’s 2020-2022 smartphone sales forecast to 154 million, 184 million and 206 million units, respectively. The survey showed that the company’s customer retention rate in the Mainland has improved, which is believed to help the performance of monthly active users, and its growth potential is positive. Although the market is mainly focused on the company’s smartphones, the profitability of smartphones is not significant, accounting for only 7% of net profit in 2019, and the net profit margin is below 1%. In general, the bank believes that the company’s hardware net profit margin will not be significantly improved this year because of the high cost of 5G parts, coupled with the need for offline channels in the Mainland and overseas expansion.
Yesterday, Cinda Securities released a research report saying that it reiterated Xiaomi’s “Buy” rating. Taking into account the company’s leading position in the domestic mobile phone and Internet of Things (IoT) industries, the high growth of future performance and business expansion, the company is expected to grow further amid changes in the industry structure.