The news about XIAOMI's car building has been rumored for a long time in recent months, spreading repeatedly between market rumors, official denials, new market rumors and official re-announcement confirmation, superimposing the recent volatility of the market itself. XIAOMI Group's share price is also fluctuating repeatedly.

As the second half of XIAOMI's new product launch approached, XIAOMI suddenly announced that the company planned to set up a wholly-owned subsidiary to take charge of the smart electric vehicle business. The initial investment is 10 billion yuan, with an estimated investment of 10 billion US dollars in the next 10 years. Mr. Lei Jun, the CEO of the group, will also serve as the CEO of the smart electric vehicle business.

Then, at the launch of the new product on March 30, XIAOMI also explained in detail the matter of building a car.

The content of Mr. Lei Jun's speech on this is attached below.

Xiaomi official announced that the car is undoubtedly a sensational event in the industry, XIAOMI's entire valuation system will also be reshaped. In addition, XIAOMI released his annual report and recently released a new machine, which will also have an impact on XIAOMI's valuation.

Therefore, this article will start from two aspects.The first is to discuss the contents of XIAOMI's annual report, and the other is to explore how to find a new valuation method for XIAOMI between the changes in XIAOMI's mobile phone business and car-building business.

The performance is basically in line with expectationsMobile phone business maintains high growth

XIAOMI's income is divided into three major parts, including smartphones, IoT (smart wear) and consumer goods, Internet services (advertising, games).

Among them, mobile phone is the largest business, still accounting for about 60.5% of revenue, but it is also the business with the lowest gross and net profit. XIAOMI's strategy is to occupy the mobile phone terminal market with a low net interest rate, so as to expand the income of IoT, consumer goods and the Internet.

In addition, IoT and Internet businesses account for 29.9% and 8.8% of revenue, respectively.

(1) increase in revenue from mobile phone business

XIAOMI mobile phone revenue growth began to decline in 18 years, and Q3 showed negative growth in 2019, then rose again with the strong intervention of founder Lei Jun, and after Huawei was restricted, it benefited from 5G replacement drive and flagship model price range to continue to rise, rapidly expanding market share.

In 2020, Q4 mobile phone business performed well, continuing the trend of Q3, with shipments reaching 42.3 million units (up 29.8% year on year) and revenue of 42.6 billion yuan (up 38% year on year). Although shipments and revenue are slightly lower than Q3, but this is due to the global chip supply shortage, 20Q1 has basically solved this problem, XIAOMI will continue to stabilize the world's third market share.

At the same time, the price and configuration of XIAOMI's flagship model continued to improve, and the proportion of high-end machines gradually increased, thus promoting the promotion of ASP. The ASP of XIAOMI's mobile phone increased from 807.2 yuan in 2015 to 1021.5 yuan in Q4 in 2020, with a sharp increase in 2020.

With the release of XIAOMI 11, XIAOMI Pro, XIAOMI Ultra, and chargers and other equipment is no longer a gift, there is room for further improvement in the future ASP.

(2) IoT and Internet business ushered in an inflection point

Compared with mobile phones, IoT and Internet business have grown faster in the past five years, reaching a compound growth rate of 63.5% and 44.8% respectively from 2015 to 2019. In recent years, the revenue share has been maintained in the range of 20% and 35%, and has a gradual upward trend.

However, XIAOMI Q1-Q4 still achieved 67.4 billion yuan in revenue, maintaining a good positive growth.

XIAOMI TV ranks first in Chinese mainland shipments for seven consecutive quarters, and XIAOMI TV is expected to maintain positive growth in 2020. After entering 2020Q2, with the increasing demand of the epidemic for home entertainment and telecommuting, the revenue growth rate of TV + computer began to reverse.

As the global leader in AIoT, the number of XIAOMI IoT connectable devices reached 325 million in 2020, an increase of 38% over the same period last year; the number of users with more than 5 XIAOMI AIoT devices reached 6.2 million, an increase of 52.9% over the same period last year, which is an astonishing growth, and is expected to continue to maintain a high growth rate in the future.

At the same time, the number of devices bound to XIAOMI's IoT platform has increased by an average of more than 25 per cent in a year, while users who have signed up for IoT devices have a higher retention rate on their smartphones.

(3) the growth rate of Internet business remains steady.

Advertising revenue in the Internet business reached 3.7 billion yuan, an increase of 23.3% over the same period last year, a record high for a single quarter, mainly due to the company's smooth expansion of Internet business in overseas markets and rapid revenue growth.

From 2015 to 2019, MAU increased from 112 million to 309 million, with a compound annual growth rate of 28.9%. In 2020, Q4 Mau continued to grow, reaching 396.3 million at the end of the period, an increase of 28% over the same period last year.

Among them, China has remained stable since it reached 109 million in 2018, mainly because the domestic market share of XIAOMI mobile phone has been stable, while overseas users have maintained rapid growth, growing from 91 million in 2017 to 285.3 million of Q4 in 2020. The growth rate is considerable, mainly due to the outstanding performance of XIAOMI mobile phone in overseas markets, and the market share continues to increase.

XIAOMI's mobile phone is growing rapidly in the European market, and its market share continues to expand, which is expected to become the largest incremental source of XIAOMI's Internet services. Users in European developed markets have higher consumption levels, which may lead to higher ARPU.

Company valuation

(1) Mobile phone business

Judging from the above-mentioned dismantling of XIAOMI's business income, XIAOMI's mobile phone business has increased significantly since 20Q3, and there is room for continuous improvement all over the world (mainly overseas). With the recovery of the mobile phone industry in 2021 and the increase of XIAOMI's market share in EMEA, XIAOMI's mobile phone business will grow significantly; IoT, consumer goods and Internet services will continue to grow steadily as the epidemic gradually alleviates.

After splitting the structure of XIAOMI's revenue, we will discuss the valuation of the company. To do this, let's make a few assumptions about a few businesses:

① XIAOMI smartphone currently has a global market share of about 12.1%. It is expected to maintain this market share in 2021, corresponding to 199 million mobile phone shipments in 2021, with reference to mobile phone ARPU in 2020, corresponding to mobile phone revenue of 219 billion yuan, and mobile phone net interest rate of 2%.
② IoT business can still maintain rapid growth; net interest rate 5%
③ refers to the ARPU value of Internet business in 2020, and the ARPU of Internet business remains unchanged; the net interest rate is 24.9%.

Combined with the global smartphone leader Apple Inc, emerging market mobile leader voice holding, sweeping robot leader as a comparable company, considering XIAOMI's leading position in the mobile phone and IoT industry, the future performance of high growth and business expansion, the company is expected to further grow in the changes in the industry pattern.

Based on the estimated net profit in 2021, XIAOMI's current PE is 35x. With reference to the valuation level of comparable companies in 2021 and taking into account the growth of XIAOMI, the agency gave XIAOMI Group a reasonable valuation of 45 times 40 PE in 2021. There is still room for the current stock price, and it is still reasonable to float 10% by 20%. It is estimated that the market capitalization of mobile phones will be between 7000 and 800 billion in the coming year.

(2) Automobile business

XIAOMI's automobile business is only an official announcement at this node, and there are no real products yet. According to XIAOMI's plan, the initial investment is 10 billion yuan, and the estimated investment is 10 billion US dollars in the next 10 years.

As XIAOMI's mobile phone business has been a great success, I believe XIAOMI has the ability to do a good job in the car, soSuppose XIAOMI in the car-building business in the future at least comparable to NIO Inc., XPeng Inc., ideal and other new car-building forces.To this end, the past financing of the three new car-building forces can be used as the anchor of XIAOMI's automobile valuation. By adjusting NIO Inc. 's listing time to August 2020, its total market value has also risen to 10 billion US dollars, which is close to XPeng Inc. 's ideal market capitalization level.

The three companies raised about 15 billion yuan before IPO, valuing them at about $10 billion at the time of IPO financing around August 2020.

therefore,If the valuation of the new power IPO is used as an anchor, the valuation of XIAOMI Motor in the next 3-5 years can reasonably reach US $10 billion (HK $77.7 billion). It is optimistically estimated that the valuation will exceed HK $100 billion.

In addition, in the long run, considering XIAOMI's planned investment of US $10 billion, and with reference to NIO Inc. 's valuation of US $59 billion through bond issuance and fixed investment of US $10.5 billion, XIAOMI is expected to be valued at more than HK $450 billion in the next five to 10 years.

Finally, add up the valuations of the mobile phone business and the automobile business, and XIAOMI's reasonable valuation can be calculated.