(Nov 18): Xiaomi Corp has gone from market darling to the worst-performing Chinese technology stock in just a few short months, and a quick comeback looks challenging amid headwinds in the smartphone and electric vehicle (EV) markets.
Doubts over the company may become amplified with results due later on Tuesday that are expected to show its slowest revenue growth since 2023. Short sellers are circling, and sell-side analysts have been lowering price targets for the shares due to the difficult earnings outlook.
Rising memory-chip prices are expected to cut into Xiaomi’s margins on smartphones, and price hikes are difficult amid sluggish Chinese consumption and strong sales of Apple Inc’s iPhone 17. Meanwhile, the company has been scrambling to increase its EV capacity to meet orders.
Higher memory costs “might be an overhang for longer”, said Xin-Yao Ng, a fund manager at Aberdeen Investments. Given its struggles with EV capacity, “there are concerns that auto delivery and thus revenue might not be as great as some investors might have hoped for”.
The feverish rally that had driven Xiaomi towards US$200 billion ($260.52 billion) in market capitalisation as of June has rapidly faded. The Hong Kong-listed stock is down nearly 30% from a recent peak in September, ranking bottom on the Hang Seng Tech Index in that span.
See also: Databricks seeks US$130 bil valuation, The Information reports
Persistent worry over China’s economy and brutal price wars in the nation’s consumer sector have tempered earlier investor enthusiasm over Xiaomi. Costs have now also become a growing concern.
Monthly contract prices for mobile DRAM chips surged 21% in October to the highest since July 2022, according to InSpectrum Tech. The prices may rise by another 10% in the third quarter, according to HSBC Holdings plc.
“We are still in the midst of pretty much a supercycle in memory,” said Gokul Hariharan, an analyst at JPMorgan Chase & Co. analyst. For companies like Xiaomi, “there will be pressure on margins because you can’t pass on all of these costs to consumers”, he added.
See also: Apple designer who introduced the iPhone Air leaves company — Bloomberg
In EVs, Xiaomi continues to expand deliveries and co-founder Lei Jun has said the division is targeting profitability this year. But the broader auto market is facing headwinds due to the phasing out of trade-in subsidies offered by local governments.
The company’s Internet-of-Things revenue is also likely to drop off relative to last year’s big boost from government subsidies, Barclays plc analysts including Jiong Shao wrote in a note last week.
On the plus side, Xiaomi’s slide has made the stock more affordable. It’s now trading at 19 times estimated forward earnings, half its peak valuation earlier this year.
Mainland investors have been piling in, with net purchases of the stock over 13 straight days through last Friday via the trading link, according to data compiled by Bloomberg.
The stock still has 47 'buy' recommendations against three 'holds' and two 'sells'. But the average price target has been trimmed more than 8% from a peak in August, the third-biggest cut among Hang Seng Tech members after Meituan and Li Auto Inc.
Short interest in Xiaomi’s Hong Kong shares has crept back up towards 0.7% of the free float from a low of 0.4% in July. Hedge funds have been ramping up bearish bets on safety concerns, factory delays and a lack of uptake in its EVs despite recent promotions, according to Goldman Sachs Group Inc.
Uploaded by Tham Yek Lee
