16 July 2019
Xiaomi's founder Lei Jun has been compared with former Apple CEO Steve Jobs. Now, analysts are saying Xiaomi could be twice as expensive as Apple Inc. Photo: Bloomberg
Xiaomi's founder Lei Jun has been compared with former Apple CEO Steve Jobs. Now, analysts are saying Xiaomi could be twice as expensive as Apple Inc. Photo: Bloomberg

Xiaomi may be worth twice as much as Apple: Morgan Stanley

Chinese smartphone maker Xiaomi Corp. has been dubbed “China’s Apple” and its founder Lei Jun “China’s Steve Jobs” in part because Lei also favors the simple design and convenient features preferred by the former Apple CEO.

But according to Morgan Stanley research, the Beijing-based company could be worth twice as much as the Cupertino, California-based technology giant, Bloomberg reports. 

Morgan Stanley is one of the investment banks sponsoring Xiaomi’s much-awaited initial public offering in Hong Kong, which is expected to raise US$10 billion.

Xiaomi Corp. should be traded at a premium to other global phone brands due to its market-share gains and faster growth trajectory, the bank said in an analyst report.

The smartphone empire that Lei Jun built has a fair value of about US$65 billion to US$85 billion, translating into around 27 to 34 times forecasts for its 2019 adjusted earnings, the report said.

By comparison, Apple is trading at about 14.5 times adjusted earnings estimates for next year, based on data compiled by Bloomberg.

The report also suggests that Xiaomi should fetch richer multiples than Chinese internet giants Alibaba and Baidu, as well as rival smart hardware makers like Fitbit and GoPro.

In a separate research report, Goldman Sachs, also one of Xiaomi’s IPO sponsors, gave Xiaomi a forward equity valuation range of US$70 billion to US$86 billion, translating into 26 to 32 times its forecast adjusted 2019 net income.

Besides its growing presence in overseas markets, the report also noted that Xiaomi has emerged as the gateway to about 100 million users in China, who are monetized via a suite of online services.

“Xiaomi integrates the internet user experience with hardware to offer an unrivaled user experience,” Goldman Sachs wrote in the report. “The company’s hardware aggregates traffic, its software builds platforms, and its internet services generate revenue and profit.”

On the other hand, JPMorgan analysts said Xiaomi could be valued as much as US$92 billion given the strong long-term cash flow growth beyond 2020.

Morgan Stanley, Goldman Sachs, and CLSA are leading Xiaomi’s Hong Kong IPO as joint sponsors, according to an exchange filing last month.

Credit Suisse, Deutsche Bank, JPMorgan and six Chinese banks are also helping arrange the share sale, Bloomberg said, citing people with knowledge of the matter.

Ahead of its IPO launch expected in early or mid-July, Xiaomi booked a first-quarter net loss of 7 billion yuan (US$1.09 billion), after recording a net loss of 43.89 billion yuan for the whole of 2017, according to its draft prospectus.

It did not reveal its fundraising target or the number of shares on offer in the filing.

Meanwhile, Xiaomi will become the first company to sell Chinese depositary receipts (CDRs) which will allow investors in mainland China to purchase its shares.

Sources told the Hong Kong Economic Journal that Xiaomi plans to raise about 50 percent of its US$10 billion IPO by selling shares in mainland China while offering the remainder in Hong Kong.

A Reuters report earlier this month said the CDR portion was likely to account for up to 30 percent of its total fundraising size.

This article appeared in the Hong Kong Economic Journal on June 13

Translation by Ben Ng with additional reporting

[Chinese version 中文版]

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