Chinese gadget-maker Huami's IPO tracks Xiaomi hype

[HONG KONG] China's answer to Fitbit is tracking another company's big steps. Huami, a maker of wearable devices, just unveiled plans for an initial public offering(IPO) ahead of a more highly anticipated one by Xiaomi.

Four-year-old Huami manufactures "Mi" -branded fitness bands for Xiaomi, the smartphones-to-appliances outfit gearing up for a blockbuster share sale that could value it at some US$100 billion, according to Reuters.

Xiaomi accounts for more than 80 per cent of Huami's revenue. Its top line of 1.3 billion yuan(S$267.5 million) in the nine months to September was 37 per cent more than a year earlier. And thanks to the higher-priced Mi Band 2, the company swung to a net profit of 95 million yuan for the period.

Ties with Xiaomi run deep. The two have agreements that include development, manufacturing, distribution, profit-sharing, patents and user data. Xiaomi, led by the ambitious entrepreneur Lei Jun, also holds a 19 per cent stake in Huami, while Mr Lei's venture capital firm owns another fifth.

Being so inextricably linked to one major customer is a red flag. At the same time, it's a partner that for now at least is growing quickly and eventually could help fund more diverse sales under its own brand. Huami's reliance on Xiaomi has been shrinking. And with some 50 million registered users, it may be able to separate itself from a crowded pack of Western rivals that have struggled to live up to the market hype.

Cheaper copycats and cutthroat competition from smartphones and watches have weighed on Fitbit, whose stock has plummeted 90 per cent from a peak reached shortly after its debut two-and-a-half years ago. Wearable-camera maker GoPro, meanwhile, recently announced plans to slash a fifth of its workforce and exit the drone market. Its shares are trading at three-quarters of their June 2014 IPO price.

Fitbit and GoPro, which are losing money, each has a market value of less than 80 per cent of the revenue analysts expect them to generate this year. On that basis, assuming Huami can sustain the same level of sales growth it has been generating of late, it would be valued at less than US$350 million. Profitability and the Xiaomi halo, however, also mean Huami's IPO could outpace that figure.

China's Huami, which makes connected wearable devices including fitness-tracking bands for smartphone-maker Xiaomi, submitted a prospectus for an initial public offering on Jan 12.

In the first nine months of 2017, Huami generated a net profit of US$14.3 million from US$195 million of revenue, according to a filing with the US Securities and Exchange Commission.

Xiaomi owns about a 19 per cent stake in Huami.

Separately, Xiaomi has tapped CLSA, Goldman Sachs and Morgan Stanley as joint sponsors for an IPO, Reuters reported on Jan 15, citing unnamed sources.

Xiaomi's IPO could value the company at up to US$100 billion, and be the world's biggest technology listing in 2018, IFR reported on Jan 15.

REUTERS