Is Xiaomi underestimated?

Since the Xiaomi Group was listed for a year, the capital market has not bought it.

As Xiaomi’s products appear more and more in the list of people’s decoration and home appliances, the label of mobile phone companies has become increasingly blurred for this company. The reshaping of the industrial engine has caused a major change in Xiaomi’s revenue and profit structure.

However, since the listing for a year, the capital market has not bought it. The stock price of Xiaomi Group (01810.HK) is almost at the beginning of the listing. Is Xiaomi underestimated?

Mobile phone pressure
The macro tone of the mobile phone market is sad. According to the market research organization IDC report, the global smartphone shipments in 2012 were 1.4 billion, a decrease of 4.1% from 2017. It is expected that the downward trend will continue in 2019.

The mobile phone report released by Canalys in China shows that in the first quarter of this year, the sales volume of mobile phones in the Chinese market was 88 million units, of which Huawei (including glory) sold 29.9 million units, the OPPO sales reached 16.8 million units, and VIVO sold 15 million units. Third, millet sales ranked 10.5 million units.

Among the top four domestic manufacturers of “Hua Mi OV”, Huawei’s 41% year-on-year growth rate is far ahead, while Xiaomi’s market share has dropped from 13.3% in the same period in 2018 to 10.5%.

Xiaomi once took the lead in the smart phone market, capturing countless fans with cost-effective and Internet marketing. However, it is the price-performance ratio and Internet marketing that have laid the “bane” of weak growth in the future for Xiaomi’s fan economy.

With its excellent industrial chain advantage and high-end machine strategy, Huawei’s brand power has rapidly increased in a short period of time. Not only did it grab most of the market share from Samsung, but it also took the “national goods” to its own sake, cutting the pain points of consumers. Even with the Sino-US trade war, it has not affected its mobile phone market.

OV, with its huge sales network accumulated during the functional period, quickly expanded rapidly in non-first-tier cities. The online marketing of the advertising marketing strategy of the company has been accurately and reasonably output. Yu Chengdong, the CEO of Huawei’s early consumer business, once said that OPPO’s specialty store is only 10 square meters, but it is on the street. Consumers who want to visit the mobile phone store will soon think of it.

Xiaomi at that time still “practices” hunger marketing. However, compared with Huawei and OV, the high-performance attributes that Xiaomi relies on stacking hardware have gradually lost in the face of Huawei’s industrial chain advantage; while relying on Internet marketing has saved a certain cost, but compared with OV’s online and offline, Xiaomi’s Offline customer traffic is hard to find.

After knowing Xiaomi began to hope for the Xiaomi home and authorized stores. Although Xiaomi began to expand offline, the first-mover advantage is no longer, and the cost of building a store is already high.

As of December 31, 2018, Xiaomi set up 1,378 authorized stores, set up more than 38,000 franchised stores and direct supply points in the township-level market; established 586 millet homes, mainly in the first, second and third-tier cities.

In the highly competitive mobile phone market, Xiaomi is currently in a dilemma. Price reduction is a hedging method that has to be chosen for the mobile phone product dimension, but it also directly led to the continuous decline in the gross profit margin of Xiaomi mobile phone sales, from 6.3% at the beginning of the listing in 2018 to 3.28% in the first quarter of this year.

With the continuous splitting and new design of Xiaomi’s mobile phone brand, it is very obvious that Xiaomi wants to create a layered and clear product level. However, in the face of Huawei’s dual brand and Realme returned from overseas gold plating, Xiaomi’s breakout is not easy.

AloT’s growth space
Although Xiaomi’s first quarter financial report for 2019 showed that Xiaomi Group’s total revenue was 43.8 billion yuan, up 27.2% year-on-year; adjusted profit was 2.1 billion yuan, up 22.4% year-on-year, and revenues increased double, exceeding market expectations.

However, Xiaomi’s downside performance in the capital market remained stable in 2019. July 6, 2019, is the first anniversary of Xiaomi’s landing in Hong Kong stocks. On the previous day, Xiaomi closed at 9.95 Hong Kong dollars, which has plunged 41% from the initial price of HK$17 at the beginning of the listing. The market value has evaporated by nearly 200 billion Hong Kong dollars.

Xiaomi, which has a poor performance in the capital market, emphasizes confidence through frequent repurchase. Xiaomi Group announced on July 3 that it had repurchased 5.12 million shares of Class B common stock at the Hong Kong Stock Exchange; the repurchase price was HK$9.70-9.76 per share, which cost approximately HK$49,938,900.

Since June, Xiaomi Group has repurchased 19 times. Why is Xiaomi so “pretentious”?

This will start from the expansion of Xiaomi’s line. Xiaomi’s offline store has a large number of millet homes. Different from the offline stores of other mobile phone manufacturers, Xiaomi’s home is not so much a mobile phone store, it is more like a department store of Xiaomi Eco.

Since its inception, the fan economy has always been an important means of distributing user traffic to Xiaomi. The early MIUI system has now evolved into the Xiaomi ecosystem.

In the past four quarters, the AIOT business is the leader in the growth rate of Xiaomi’s three main businesses. According to the official information of Xiaomi TV, the sales of Xiaomi TV have been between November 2018 and April 2019. It reached the first place in China for 6 consecutive months. The overseas market has achieved remarkable results. The shipments from January to April 2019 ranked among the top five in the world, and Sony in Japan was squeezed out.

According to the financial report, Xiaomi officially launched the dual-engine strategy of mobile phone + MoT in 2019. Xiaomi is strategically “scorning” the visible ceiling mobile phone business. Xiaomi TV is just the tip of the iceberg of Xiaomi Ecology. On the track of smart wearable equipment, Xiaomi bracelet has also become a global head team.

Today, mobile phones are no longer a barrier to entry for traffic portals. With the advent of the 5G era, the value generated by the tandem of smart devices will be highlighted.

In 2018, Xiaomi’s MoT business grew by 87% year-on-year. The IoT platform has more than 171 million connected devices, a 70% year-on-year increase. According to the 2018 annual financial report of Xiaomi Group, the gross profit of Xiaomi last year was 11.5 billion yuan, while the gross profit of Internet service was 10.3 billion yuan. The latter accounted for only 9% of the total income of Xiaomi in 2018, but contributed Nearly half of the gross profit.

Among them, the AIoT business is undoubtedly an important extension and carrier of Xiaomi’s landing Internet service.

As a technology company, Xiaomi’s valuation is close to that of Apple and Lenovo. The hardware vendor attribute is an important reason for the development of the capital market. With the dual-engine strategy of mobile + MoT, Xiaomi’s valuation may face repairs.