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Xiaomi Corporation: Geographic Diversification Is A Double-Edged Sword

Jun. 09, 2020 9:29 AM ETXiaomi Corporation (XIACY) Stock2 Comments


  • Xiaomi's 1Q2020 financial results were above expectations with its geographic diversification being a key positive factor, but overseas markets could be a drag for the company in 2Q2020 and beyond.
  • In 1Q2020, the smartphone and internet services businesses saw strong YoY revenue growth, but the IoT business disappointed due to a significant decline in sales of large home appliances.
  • Xiaomi trades at 31.7 times trailing twelve months' P/E and 23.3 times consensus forward next twelve months' P/E.
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Elevator Pitch

I maintain a Neutral rating on Hong Kong-listed internet company and smartphone manufacturer Xiaomi Corporation (OTCPK:XIACY) (OTCPK:XIACF) [1810:HK].

This is an update of my prior article on Xiaomi Corporation on December 18, 2019. Xiaomi's share price has increased by +22% from HK$10.52 as of December 16, 2019 to HK$12.86 as of June 8, 2020. Xiaomi currently trades at 31.7 times trailing twelve months' P/E and 23.3 times consensus forward next twelve months' P/E.

Xiaomi's 1Q2020 financial results were above expectations with its geographical diversification being a key positive factor, but overseas markets could potentially be a drag for the company in 2Q2020 and beyond. Year-to-date, Xiaomi's share price is up +22%, while the Hong Kong benchmark Hang Seng index is down -12% over the same period. Positives from Xiaomi's 1Q2020 better-than-expected financial results have already been priced into the company's share price. There is a significant risk of valuation de-rating, if Xiaomi's financial performance in subsequent quarters falls short of expectations. As such, I think that a Neutral rating for Xiaomi is fair.

Readers have the option of trading in Xiaomi Corporation shares listed either on the Over-The-Counter Bulletin Board/OTCBB as ADRs with the tickers XIACY and XIACF or on the Hong Kong Stock Exchange with the ticker 1810:HK. For Xiaomi Corporation shares listed as ADRs on the OTCBB, note that liquidity is low, and bid/ask spreads are wide.

For Xiaomi Corporation shares listed in Hong Kong, there are limited risks associated with buying or selling the shares in terms of trade execution, given that the Hong Kong Stock Exchange is one of the major stock exchanges that is internationally recognized, and there is sufficient trading liquidity. Average daily trading value for the past three months exceeds $250 million, and market capitalization is above $39.8 billion, which is comparable to the majority of stocks traded on

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This article was written by

The Value Pendulum profile picture

The Value Pendulum is an Asian equity market specialist with over a decade of experience on both the buy and sell sides.

He is the author of the investing group Asia Value & Moat Stocks, providing ideas for value investors seeking investment opportunities listed in Asia, with a particular focus on the Hong Kong market. He hunts for deep value balance sheet bargains and wide moat stocks and provides a range of watch lists with monthly updates within his investing group.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Thanks for the great objective point of view.
Imo xiaomi got a great businessmodel compared to other smartphone producer. To get a feed into the market over the price and, maybe in future, to earn more each sell is the way to go. Keep on. If xiaomi join the hang-seng and maybe gettin into the us market in future the stock will rise to sky
The Value Pendulum profile picture
Thanks for your kind words, and sharing your thoughts on the company, michel_newbie, much appreciated.
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