If the rising tide of investor optimism in China (and tech shares) is supposed to lift all equity boats, then at the moment Xiaomi Corp. appears to be adrift.
The smartphone maker’s stock has failed to benefit from the wave of investor cash that’s flooded into Chinese equities this year, retreating more than 6 percent in the face of double-digit rallies for benchmarks in both Hong Kong and China. To add insult to injury, mainland technology shares have led gains in the CSI 300 Index, with a 47 percent rally.
Xiaomi has lost almost 30 percent since its highly anticipated trading debut in Hong Kong last July, hampered by plateauing smartphone demand globally and especially in its home market, where it still generated more than half its revenue in the third quarter. Add to that broad headwinds for Chinese names amid the U.S.-China trade war.
The company was one of a wave of hot-shot initial public offerings in Hong Kong that fizzled last year, with the likes of Ping An Healthcare and Technology Co., Ascletis Pharma Inc. and food-delivery giant Meituan Dianping all stumbling out of the starting blocks. Yet while even the latter three have bounced back at least 10 percent (Ping An Good Doctor has made a 68 percent comeback, actually) this year, Xiaomi remains mired in its rut.
One contributing factor is likely the fresh wave of selling Xiaomi experienced in January after its lockup period ended, when key investors were allowed to sell shares. Despite the IPO’s disappointment, those who picked up the stock in its earliest funding rounds between 2010 and 2011 for as little as 1.95 Hong Kong cents may have reaped a profit of almost 57,000 percent if they sold in January.
Xiaomi will have an opportunity to get investors back on the bandwagon when it reports its fourth-quarter results after yesterday’s markets close. The company is expected to post adjusted net income of 1.42 billion yuan (USD211 million) against revenue of 46.2 billion, according to consensus estimates from analysts surveyed by Bloomberg.
Key to Xiaomi’s outlook will be whether the smartphone maker can follow up on its third quarter, when it surprised analysts beating estimates for both sales and profit as it relied on its presence in emerging markets such as India and Southeast Asia to offset weakening demand in China. Its unit shipments to its home market plunged 35 percent during the fourth quarter, lagging rivals including No. 1 supplier Huawei Technologies Co., whose own shipments soared 23 percent, according to research firm IDC.
“Xiaomi could have mitigated a sharp deceleration of its smartphone-shipment growth by improving product mix and average selling prices in the fourth quarter,” said Anthea Lai, a technology analyst with Bloomberg Intelligence in Hong Kong. The company has also stepped up its branding efforts by splitting its lower-priced phone series Redmi from its higher-end brand, Lai noted.
The smartphone maker is also counting on the shift to so-called 5G next-generation wireless technology to boost flagging demand in China, Chief Executive Officer Lei Jun told Bloomberg Television in a January interview. However, that technology will take time to implement. Eric Lam, Bloomberg