Initiation Company Report Consumer E INDUSTRY NM INDUSTRYME NM INDUSTRY How to make the impossible mission possible? February 26, 2019 Two roads diverge in the triathlon track Research Team Tianli Wen ● Xiaomi today as a regional and marketing innovator faces an uphill battle against Head of Research Huawei, a global and technology innovator. Yet Xiaomi’s user base, Internet root and brand loyalty are its key strength. As Internet-Of-Things (IOT) taking root, the Tris X. Gong battle ground will shift to Xiaomi’s favour; ● We suggest Xiaomi to focus on two areas to enhance its valuation: (1) developing +852 21856112 Internet content, (2) spending on R&D. Both require a healthy cash flow, which
[email protected] makes margin and profitability improvement imperative; ● Given Xiaomi’s near-term challenges as a global company, we rate the stock a HOLD with a TP of HK$14.55. Xiaomi’s brand, Mi, stands for Mission Impossible. See the last page of the report for important disclosures Blue Lotus Capital Advisors Limited 1 China|Asia ●Initiation Consumer ● Electronics Xiaomi Inc. (HK: 1810) Making the impossible mission possible BUY HOLD SELL ● We initiate Xiaomi with a HOLD rating and TP of HK$14.55 because we Target Price: HK$ 14.55 Current Price: HK$ 12.20 Initiation believe Xiaomi still need to hone its skills as either a technology champion RIC: (HK:1810) BBG: 1810 HK Market cap (HK$ mn) 291,500 like Huawei, or a platform+content powerhouse like Tencent, or both; Average daily volume (HK$ mn) 678 ● Xiaomi’s near-term challenge is to achieve greater profitability so that it can Shares out/float (mn) 17,204/4,360 Source: Bloomberg, Blue Lotus (as of Feb 26, 2019) further build up Internet services and play in the technology top league; ● Global expansion and content are opportunities.