小米集团(01810.HK)点评报告:手机销量疲软 23年有望迎来周期性复苏

Xiaomi Group (01810.HK) Review Report: Weak mobile phone sales are expected to usher in a cyclical recovery in '23

浙商證券 ·  03/29  · Researches

Key points of investment

On March 24, the company released its 22-year report. The company achieved revenue of 66 billion yuan (YoY -22.8%, QoQ -6.28%) in 22Q4, higher than Bloomberg's unanimous forecast of 0.98%; non-GAAP net profit of 1.46 billion yuan (YoY -67.3%, QoQ -31.0%) was higher than the consistent forecast of 14.2%.

The high-end mobile phone business is beginning to show. ASP in mainland China increased 14% year on year, but overseas dragged down mobile phone business 22Q4 revenue by 36.7 billion yuan (YoY -27.33%, QoQ -13.6%), lower than the agreed forecast of 3.98%. The gross profit margin was 8.18% (YoY -1.92pct, QoQ -0.70pct), which was higher than the agreed forecast of 0.1pct. The number of mobile phones shipped was 32.7 million units (YoY -25.9%, QoQ -18.7%), lower than the unanimous forecast of 5.33%. The mobile phone ASP was 1,121 yuan (YoY -1.98%, QoQ +5.93%), higher than the unanimous forecast of 2.90%.

Shipments fell sharply year-on-year and month-on-month, mainly due to the overall weakness of the industry. According to Canalys data, global smartphone shipments fell 17% year on year in 22Q4 and mainland China fell 14% year on year due to the global macroeconomic environment, geographical factors, and the impact of the epidemic in mainland China. At the same time, we believe that the market underestimated the negative impact on consumption after the epidemic control was fully liberalized in December '22, so shipment volume data fell short of consistent expectations.

Overseas inventory removal led to a decline in overall ASP, which was partially offset by the excellent performance of high-end machine sales in mainland China, and in the end, overall ASP declined slightly. According to the company announcement, the company's Q4 high-end smartphone shipments in mainland China increased 6.8% year-on-year, and ASP increased 14%, showing excellent performance. However, at the same time, the company revealed during the earnings call that inventory removal is also the company's current priority. Combined with the overall weakness in overseas Q4 mobile phone shipments, it was determined that overseas markets lowered ASP, which ultimately led to a slight year-on-year decline in Q4 global ASP.

Since there were no “hot products” in previous generations, the market underestimated the improvement of ASP in the Xiaomi 13 series, so ASP data exceeded market expectations.

Looking at gross margin, the increase in the company's ASP naturally led to an increase in gross margin. The main reason for the year-on-year decline in financial reports was that the company's mobile phone after-sales service policy was updated in November 2022, which resulted in a one-time cost of about 700 million yuan. Excluding this one-time impact, the 22Q4 gross margin of the mobile phone business was 10.1% (YoY remained flat, QoQ+1.2PCT).

Looking ahead, judging from shipments, we expect the industry and companies to experience a cyclical recovery in '23, and we are optimistic that ASP will continue to grow, and that the competitive pattern will ease to a certain extent.

Looking at shipment volume, in 2022, global mobile phone shipments remained at a low level on a quarterly and annual basis, and 22Q3 shipments were close to the extreme situation of the epidemic in '20. We expect that the industry has basically reached rock bottom, and it is unlikely that it will continue to decline. At the same time, the peak of Xiaomi's previous shipment volume was from mid-2020 to the beginning of 2021, and it also gradually entered the switching cycle. Therefore, if we look at the most pessimistic assumption, that is, there is no explosive technological innovation and that the company is not ahead of the industry's changeover cycle, we can also estimate that 2023 will gradually enter a recovery period. At the same time, we have seen that companies are unlikely to lose customers due to the arrival of their own switching cycle. According to massive arithmetic data, the company's switching retention rate has basically remained the highest in the last 5 quarters except for Apple, except for 22Q3. In summary, we judge that there are opportunities for a cyclical recovery in '23.

Judging from ASP, our judgment will also continue to rise because we are optimistic about the flagship series 13. Specifically, the sales performance of the Xiaomi 13 series was strong. According to UI News data, as of January '23, Xiaomi's sales share in the 4000-6000 price range successfully soared to 21.7% from 12.6%. On AnTuTu's December '22 Android phone review list, the Xiaomi 13 Pro and Xiaomi 13 ranked 1 or 2. Among them, the Xiaomi 13 was rated 97.08%.

Judging from the competitive landscape, the biggest challenge the company has faced in the past year has come from Honor. Honor relies on Huawei's inertia. Shipments have grown rapidly over the past year, but its long-term competitiveness mainly depends on whether its newly formed R&D capabilities can continue. At present, there has been a decline in market share. According to Canalys data, Honor 22Q1-Q4's domestic market shares are 20%, 19%, 17%, and 16% respectively, verifying its judgment that it relied on previous impressions of Huawei's sub-brands for growth. It is speculated that its momentum may be insufficient, and Xiaomi's competitive environment will improve in '23.

IOT business declined 14% due to industry weakness

22Q4 IOT business revenue was 21.4 billion yuan (YoY -14.44%, QoQ +12.53%), higher than the consistent forecast of 4.36%, and the gross profit margin was 14.26% (YoY +1.21pct, QoQ +0.77pct), higher than the agreed forecast of 0.66 pct.

Revenue from the IOT business in 22Q4 declined slightly year-on-year and increased month-on-month, and gross margin increased by about 1 pct year-on-year and month-on-month. The main reason for the slight year-on-year decline in revenue was a sharp decline in demand for smart TVs and some consumer products. According to the company announcement, 22Q4 smart TV and laptop revenue fell 24.9% year-on-year to 6.5 billion yuan. The reason is also the overall weakness of the industry. According to Omedia data, global color TV shipments in 22Q4 were 5,573 units, a year-on-year decrease of 5.62%. However, revenue growth in the smart appliances category (air conditioners, refrigerators, washing machines, etc.) accelerated, up 39.9% year-on-year, making up for the decline in TV revenue to a certain extent.

Looking ahead, we think the TV business may recover weakly, while we are optimistic that the air conditioning business will continue to grow. Revenue and gross margin levels are expected to rise in 23H1. Specifically, overseas geopolitics will be difficult to improve significantly in the short term. With global inflation easing, the Fed's interest rate hike cycle is unspeakably over. Compared to mobile phones, TVs have a longer switching cycle and have worse immediate demand characteristics. Even if the macroeconomic recovery in '23 is less elastic than mobile phones. However, the company's air conditioning business has developed rapidly in recent years. Relying on direct management advantages to reduce channel costs and obtain lower prices, it is expected that it will continue to grow at a relatively rapid pace.

Internet advertising declined due to macroeconomic influence

22Q4 Internet business revenue was 7.2 billion yuan (YoY -1.35%, QoQ +1.48%), higher than the unanimous forecast of 1.38%, and the gross profit margin was 71.5% (YoY -4.51pct, QoQ -0.70pct) and higher than the agreed forecast of 0.70pct.

Overall, the year-on-year decline in Internet business revenue and gross margin in 22Q4 was mainly due to a decline in revenue and gross margin from the advertising business and fintech business. In Q4 '22, revenue from the advertising business was 4.7 billion yuan, down 4.1% from the previous year. The correlation between advertising business and macroeconomics was high. In 22Q4, mainland China's GDP growth rate was only 3%, and the advertising industry was heavily affected. Furthermore, the performance of the game business was stable in 22Q4, with revenue reaching 1 billion yuan, an increase of 8.7% over the previous year, achieving a year-on-year increase for 6 consecutive quarters. Overall, it remained around 1 billion yuan, and it is important to provide a certain amount of cash flow.

Looking ahead, we believe that the revenue and gross margin level of the Internet business may pick up 23H1. 1) The overall macroeconomic recovery in '23 was, and the advertising business is most likely to benefit from the overall stability of the gaming business. 2) As the number of MIUI users in the overall company continues to rise and the high-end strategy continues to advance, the increase in the use of MIUI will likely bring about a new wave of incremental monetization. According to the company's announcement, the company's global Internet user base continues to expand. The number of global MIUI monthly active users increased 14.4% from 509 million in December 2021 to 582 million in December 2022. Among them, the number of MIUI monthly active users in mainland China reached 144 million, an increase of 10.7% over the previous year. There is a lag in the monetization of these users, which is expected to be reflected mainly in 23Q2.

On the cost side, overall implementation reduced costs and increased efficiency, but R&D expenses remained high due to the automobile business, and sales expenses totaled 5.85 billion yuan (YoY -6.40%, QoQ +19.88%), which was 17.00% higher than the agreed forecast of 17.00%, and the cost rate was 8.86% (YoY +1.55pct, QoQ +1.93pct), which was higher than the agreed forecast of 1.16pct. The sales expenses ratio increased significantly year-on-year and month-on-month. There are two main reasons: 1) the 22Q4 company carried out product promotion activities to reduce inventory; 2) the company adhered to overseas strategies, carried out brand promotion, and increased advertising expenses. Looking ahead, we think the company's marketing spend rate is generally healthy and will remain stable in the future.

Management expenses totaled 1.29 billion yuan (YoY -2.10%, QoQ +3.47%), higher than the agreed forecast of 18.05%, and the fee rate was 1.97% (YoY +0.42pct, QoQ +0.19pct), higher than the agreed forecast of 0.27pct. The management fee rate did not change much year-on-year or month-on-month. 22Q4 The reduction in corporate executive remuneration was offset by an increase in receivables credit loss provisions. According to the company announcement, the total number of employees in 21Q4 was 33,427, and 22Q4 was 32,543, a decrease of 2.64% over the previous year.

The total R&D expenses were 4.7 billion yuan (YoY +21.98%, QoQ +15.48%), higher than the unanimous estimate of 2.17%, and the cost rate was 7.12% (YoY +2.61pct, QoQ +1.34pct), higher than the agreed forecast of 0.12pct. There was a significant increase in R&D expenses compared to the same period and month over month. The main reason was the increase in the number of R&D personnel and the increase in the cost of innovative business such as smart electric vehicles. Specifically, looking at the number of R&D personnel, as of 22Q4, the number of R&D personnel in the company was 16,171, an increase of 10.82% over the previous year, accounting for about 50% of the total number of employees; in terms of investment in smart electric vehicles, 22Q4, the company invested 1.2 billion yuan in innovative business expenses such as smart electric vehicles, accounting for 39% of the annual innovation business investment. At the same time, as of 22Q4, the company's automotive business R&D team size was about 2,300 people, an increase of about 1,300 people over 21Q4. According to the company announcement, the company's total R&D investment is expected to exceed RMB 100 billion in the next five years (2022 to 2026). We judge that in the future, the company's R&D expenses rate will slowly rise in the medium to long term.

Investment advice

We are optimistic about the cyclical recovery of the company's mobile phone business in '23. In particular, the harvest period for many years of high-end strategy is gradually approaching, and ASP is expected to continue to improve. In summary, we judge that the company's 23-25 revenue was 2971/3180/335.8 billion yuan, and net profit (non-IFRS) of 114/129/144 billion yuan. The corresponding P/E was 23/21/18 times respectively, maintaining the “buy” rating.

Risk warning

Continued macroeconomic decline has led to a decline in demand for Class 3C products, smart car business progress falling short of expectations, geopolitics have caused business damage in some countries, etc.

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