Smartphone giant Xiaomi jumps to two-year high after profit beats analyst estimates

[NEW YORK] Xiaomi shares scaled a two-year high after inroads into the Chinese market for high-end smartphones and strong growth overseas helped the company report better-than-expected profit.

The stock climbed as much as 7.5 per cent in Hong Kong to the highest level since July 2018, adding to a 78 per cent gain so far this year. The Chinese smartphone maker more than doubled net income to 4.49 billion yuan (S$891.2 million) for the June quarter, beating the highest analyst estimate. Sales increased 3.1 per cent to 53.5 billion yuan. Xiaomi's overseas business has recovered to pre-Covid-19 levels, acting chief financial officer Wang Xiang said on Wednesday.

"Driven by a favorable competitive landscape, aggressive building of sales channels, increased R&D (research and development) with strong product competitiveness, and continued adoption of 5G in China and overseas market (Europe) in 2021, we expect strong value share gains starting 2H20," Bocom International analysts including Chris Yim wrote in a report. Bocom, Morgan Stanley, CICC and Citigroup were among brokerages that lifted their price targets for Xiaomi's stock.

Smartphone shipments in European countries like France and Spain grew by 64.9 per cent in the quarter, propelling Xiaomi into the No 3 spot in the region for the first time, the company said, citing consultancy Canalys. The phonemaker also kept its top position in India in the quarter even though the country's smartphone shipments halved during lockdown measures. That drove a 12 per cent fall in the company's device shipments globally, according to IDC, just when tensions between Delhi and Beijing threatened to further depress sales in its biggest foreign market.

Xiaomi may be able to offset some of the hit through higher-margin phones and market share gains against biggest competitor Huawei Technologies, which is struggling to sustain smartphone output because of US curbs on its in-house chip design and supply. Xiaomi shipped 28.3 million smartphones during the quarter, with average selling prices increasing 11.8 per cent from a year earlier, reflecting deeper inroads into premium devices.

"Xiaomi could gain market share from Huawei in China, Europe and LatAM market," Citigroup analyst Andre Lin wrote in a report. "We believe this will accelerate smartphone growth on top of the 5G trend."

The phonemaker appointed a new chief financial officer, former Credit Suisse head of Asia technology Alain Lam, confirming a Bloomberg News report. The veteran investment banker, who worked on the public listings of Alibaba Group Holding, Google and Pinduoduo, will take up his new role in October and could help Xiaomi uncover value in the more than 300 companies it has backed. That sprawling portfolio of startups, ranging from Segway owner Ninebot to portable charger maker Zimi and Huami, are key to Xiaomi's longer-term ambition of building a network of home devices for the so-called Internet of Things.

In China, domestically oriented businesses such as media and finance could bounce back alongside an economic recovery. Xiaomi, known for lower-priced phones, has been trying to lift its average retail price to cushion margins. Chief executive officer Lei Jun this month introduced a suite of smartphones priced close to the iPhone 11 and transparent TVs costing 49,999 yuan to commemorate the company's 10th anniversary. The co-founder also pledged to develop advanced manufacturing to fuel China's high-end electronics making ambition.

Xiaomi will join Hong Kong's benchmark index from September in one of the gauge's biggest revamps, a potential boost for the stock.

BLOOMBERG