Image source @ Visual China
Wen | market capitalization list, author | He Yueyang, editor| Zhao Yuan
On the evening of March 22, Xiaomi handed over the 2021 annual answer sheet.
This is the third year of the implementation of Xiaomi's mobile phone high-end strategy, and it can be seen through this financial report that 2021 is a year of comprehensive acceleration of Xiaomi's high-end strategy: annual shipments have doubled.
Entering the high-end market is the cake that Mi OV wants to compete for after Huawei was sanctioned, and it is also the way out for Xiaomi to solve the triangle problem of shipments, ASP (stand-alone price) and gross profit margin.
Perhaps tasting this sweetness, after the Spring Festival in 2022, Xiaomi held the first important meeting in the year of the Tiger, and the theme of the meeting was high-end. At the meeting, Xiaomi set a high-end strategic goal of "the world's first mobile phone sales in three years" and "the product and experience are fully benchmarked against the iPhone".
How to implement Xiaomi's high-end strategy, and what challenges will it face? What is the fundamentals of Xiaomi at present, and can the financial situation support Xiaomi's strategy? And, is Xiaomi's current market capitalization reasonable? We try to answer these questions by tearing down Xiaomi's latest earnings report.
01. What growth does it rely on?
The latest financial report data shows that Xiaomi has returned to the high-growth track after less than 20% growth in 2019 and 2020.
For the full year of 2021, Xiaomi's operating income was 328.3 billion yuan, an increase of 33.5% year-on-year, and adjusted net profit was 22 billion yuan, an increase of 69.5% year-on-year.
Xiaomi's strategy can be divided into a hardware ecology with "mobile phone × AIoT" as the core and a software ecology with Internet services as the core.
Among them, the smartphone business is Xiaomi's basic disk, and in the 2021 annual report, the basic disk of mobile phones is becoming more and more stable, and it is also an important engine for growth.
In 2021, Xiaomi's smartphone business segment revenue was 208.9 billion yuan, an increase of 37.2% year-on-year. Further specifically dismantled, the growth of mobile phone business is brought about by the rise in volume and price.
In terms of sales, Xiaomi smartphone shipments reached 190 million units in 2021, an increase of 30% year-on-year. Among them, in the second quarter of 2021, Xiaomi mobile phone shipments accounted for the second in the world, and throughout the year, Canalys data showed that Xiaomi smartphone shipments ranked third in the world, with a market share of 14.1%.
Xiaomi's mobile phone sales in the second half of the year were weaker than in the first half of the year, of which Q1 and Q2 shipments were 49.4 million units and 52.9 million units, respectively, an increase of 61.9% and 86.9% year-on-year. The sequential decline in sales was due to a global core shortage and production was limited by the supply of core components, including SoC chips.
In order not to be stuck in the neck and seek a stable supply of chips upstream of mobile phones, in November 2021, Xiaomi invested in Wansheng Technology, a company focusing on the consumer mobile phone market and focusing on SoC mobile phone chips.
In terms of price, 2021 is the third year of Xiaomi's high-end mobile phone strategy.
Lu Weibing mentioned on the 2021 Xiaomi Investor Day that high-end can help Xiaomi not have to struggle with the seesaw relationship between shipments, ASP and gross profit margin.
Overall, high-end mobile phone shipments doubled in 2021 to 24 million units. Some models are very popular, such as more than 50% of the users who buy in the first month after the listing of the double-size double-high-end Xiaomi 12 series are new users; the first month shipments of Xiaomi 12 and 12 pro far exceed the sum of all other brands Snapdragon 8 mobile phones, Xiaomi 12Pro has become the Android sales champion of the e-commerce platform JD.com and Tmall in january 4000+ price segments; the ceramic backplane of Xiaomi 11Ultra and Xiaomi MIX4 are called the new and old machine emperors by fans.
But the brand from low-end to high-end is a tough battle, and it is impossible to achieve it overnight.
On February 8, Lei Jun spoke out to the outside world, saying that Xiaomi should go from product quality to experience high-end, and set up a flag of "winning the first domestic high-end mobile phone market share in three years", and set up a high-end strategy working group for this purpose, which shows that on the road to high-end, Millet has its strategic determination.
Looking at the AIoT business, including IoT products and consumer goods.
From the perspective of scale, the AIoT business achieved revenue of 85 billion yuan in the whole year, an increase of 26.1% year-on-year, and the growth rate was also high and low.
From the perspective of user loyalty, by the end of 2021, the number of Xiaomi IoT device connections has reached 434 million (excluding smartphones, tablets and laptops), and maintained a rapid growth rate of 33.6%, of which 8.8 million users with more than 5 devices, a year-on-year growth rate of 40.4%.
Xiaomi's AIoT products have grown more strongly overseas, among which electric scooters and smart bracelets are best-selling models. The poor growth rate in the second half of the year is also subject to external factors such as overseas logistics and panel price increases, which Xiaomi expects to ease in 2022.
Finally look at internet services.
Xiaomi's Internet service business includes two parts, one part is the traditional advertising business and games, and the other part is premium e-commerce, Xiaomi Finance, etc., which is an important source of profits.
In 2021, the Internet Business Segment contributed 35.9% of gross profit with 8.6% revenue, and the overall gross profit margin showed an upward trend, improving to 76.1% in the fourth quarter. One of the backgrounds of this achievement is that education and training are cut, games are regulated, and the advertising industry is sluggish.
Under the external downturn, the high growth of Internet business revenue benefits from the expansion of hardware product sales, and the growth of gross profit margin lies in the traffic entrance mastered by Xiaomi, and the massive user data and complete ecology make advertising and marketing more scenario-based, intelligent and precise.
As we all know, user traffic acquisition is becoming more and more expensive, and the mobile phone market has little room for growth, is Xiaomi about to reach the ceiling?
02、 How does it grow?
The discussion of ceiling and growth needs to start from both the industry and Xiaomi itself.
First, global smartphone shipments tend to be saturated.
According to IDC data, global smartphone shipments have been negative for 4 consecutive years since reaching a high point in 2016, and driven by the strong recovery of many emerging markets, shipments in 2021 have rebounded, with a year-on-year increase of less than 5%, and the compound annual growth rate of the next two years is only about 3%-4%.
Then, the opening of the ceiling of Xiaomi's mobile phone business depends on whether it can break through two aspects: high-end to enhance ASP and eat the market share of others.
Second, AIoT is still a growing track, and the ceiling is far from coming.
According to IoT Analytics, the global AIoT industry is expected to reach a compound growth rate of 29% from 2020 to 2023.
Xiaomi is an early entrant to the AIoT track, which began to lay out in 2013 and is now the world's largest consumer AIoT IoT platform company. The research report of Zheshang Securities believes that AIoT will be an important driving force for xiaomi's performance growth in the future.
Third, Xiaomi has a deep understanding of the saturation industry of mobile phones, and entering the electric vehicle industry is to find future business growth points.
As of now, Xiaomi's smart electric vehicle business has progressed smoothly, with more than 1,000 team members, and it is expected to be officially mass-produced in the first half of 2024.
Car manufacturing has uncertainty, if the mass production is successful, and recognized by the market, on the one hand, the market to create new energy vehicle companies at a higher valuation, on the other hand, Millet's cars and mobile phones, Internet services can form a wider range of ecology, this synergy will produce a flywheel effect.
However, it must also be admitted that there is a risk of high production costs and poor sales of cars, and the huge investment at this time may be adrift, which will also have a negative impact on short- and medium-term profits.
The Internet business is based on the entrance of the first three to carry out more profitable realization.
In summary, the lower limit of Xiaomi's growth is the growth of AIoT business, and the upper limit is the huge space brought about by high-end and smooth car manufacturing.
Whether it is high-end or car manufacturing, Xiaomi is required to be stronger than research and development and enhance product strength.
Xiaomi's R&D investment increased from 3.2 billion yuan in 2017 to 13.2 billion yuan in 2021, of which 42.3% year-on-year increased in 2021, and R&D investment entered the top 20 of Chinese high-tech companies.
At a press conference at the end of 2021, Lei Jun said that in the next five years, Xiaomi's research and development investment will increase to 100 billion, double the plan proposed two years ago.
In terms of results, Xiaomi 12 Pro first self-developed "Xiaomi Surging P1" charging management chip, breaking through the technical barrier that large batteries and fast charging above 100 watts cannot be taken into account, and the battery life of the same capacity increased by 1 hour; MIUI13 realized the system-level full-link anti-fraud function, and the Xiaomi 12 series also became the industry's first high-end flagship with anti-fraud function.
Xiaomi's strategic goals need to be supported by abundant funds, especially under the pressure of the economic environment.
From the perspective of asset status, Xiaomi's capital reserves are relatively abundant.
As of December 31, 2021, Xiaomi's monetary funds, restricted funds, and short-term bank deposits totaled 58.87 billion yuan, and short-term interest-bearing liabilities were 5.53 billion yuan.
Xiaomi's overall debt ratio remains around 50%, the capital structure is healthy, in 2021, its liabilities, short-term liabilities are reduced, long-term liabilities increase accordingly, and the adjustment of long-term and short-term debt structure shows that Millet has good credit and strong financing capabilities in financial institutions.
From the perspective of cash flow, Xiaomi is doing 2C business, the cash inflow is in good condition, accounts receivable and bills account for about 6% of assets, far less than accounts payable and bills, the gap between receivables and payables of 56.6 billion yuan, is the embodiment of Xiaomi's gratuitous occupation of funds through its position in the industrial chain.
03. Is the valuation reasonable?
Since its listing on the Hong Kong stock market in 2018, Xiaomi's stock price has experienced great ups and downs. Since the second half of 2020, Xiaomi's stock price has been soaring, with the highest market value exceeding HK$900 billion.
Starting in 2021, Chinese stocks began to fall sharply.
Due to the linkage between the Hong Kong market and the US market, the dismal situation of Chinese stocks and the recent international environment have triggered a decline in Hong Kong stock-related companies, which in turn has affected the downward movement of the valuation center of companies in the same industry.
As of March 22, 2022, Xiaomi's total market capitalization was HK$354.7 billion, and before the disclosure of the four-quarter report, Xiaomi's rolling price-to-earnings ratio was only more than 11 times.
What is this P/E ratio? In A-shares, the rolling price-earnings ratio is around 11 times, and there are annunciation bird that sells clothing, Shagang shares, PetroChina and some securities companies.
This means that the current market has completely ignored Xiaomi's Internet attributes and technological attributes, denied xiaomi's ecological value, and also denied the value of MIUI users and smart TV users, just treating Xiaomi as a hardware company, which is obviously unreasonable.
The decline in Hong Kong stocks, as mentioned above, is caused by multiple factors, including peripheral markets, as well as monetary and economic factors.
From the perspective of the 2021 performance that has been achieved, Xiaomi has achieved high growth in both revenue and net profit, driving the company's return on net assets (ROE) to increase, if calculated in adjusted net profit, THE ROE in 2021 will rise by 5.5 percentage points year-on-year.
Companies with solid fundamentals have a wrongful element in their decline. When the uncertainties in all aspects are eliminated, resilient companies such as Xiaomi are more likely to attract the attention of investors and take the lead in ushering in the inflection point of stock prices.
Whether it is the relative valuation method represented by PE and PB or the absolute valuation method represented by DCF, it is related to interest rates, and the decline in interest rates will increase the present value of future earnings, and the decline in interest rates will also boost the profitability of enterprises.
But since 2020, low interest rates are no longer a short-term phenomenon, but a long-term expectation. In this context, the traditional valuation method has become unfair, and it is in this context that the importance of ESG begins to emerge.
ESG is an investment philosophy and corporate evaluation standard that focuses on the environmental, social, and governance performance of enterprises rather than financial performance. Based on the ESG evaluation, investors can observe the ESG performance of enterprises, evaluate their investment behavior and their contributions to promoting sustainable economic development and fulfilling social responsibilities.
Organizations such as Xiaomi's Public Welfare Foundation have strengthened their support for social welfare work. Direct spending money is the easiest way, and social responsibility is also reflected in its own win-win situation with society, the environment and the industry.
In the past two to three years, Xiaomi has continued to introduce new measures in the field of ESG, including redesigning the packaging method that can reduce the packaging of materials, reducing the amount of packaging materials by up to about 40%, and improving the level of intelligent manufacturing.
In addition, Xiaomi has set up a special industrial investment team, invested in about 100 innovative technology enterprises through the industry fund, and invested in the construction of upstream industrial chains such as communication technology, analog semiconductors, touch displays, sensors, integrated electronics, batteries, industrial automation, precision manufacturing and materials, providing funds, talents, supply chain resources and commercialization, market-oriented counseling and a series of support for their innovative research and development.
Xiaomi uses these companies' products in its own mobile phones and AIoT products. Through investment and orders, Xiaomi has boosted the rise of domestic high-end manufacturing enterprises.
With the improvement and popularization of the ESG valuation system, enterprises with perfect corporate governance systems, transparent information disclosure, and active social responsibility and environmental protection responsibilities will also receive corresponding market value rewards.