Chinese smartphone maker Xiaomi has submitted documents with a view to listing in Hong Kong. Though the size of the planned Initial Public Offering was not disclosed, reports indicate that it’s valued at approximately $10 billion. This would make it the largest stock exchange listing since Chinese online retail giant Alibaba went public four years ago. The proceeds from the Initial Public Offering will be spent in investments, overseas expansion and research and development.
New rules have been introduced in Hong Kong and they are intended to lure tech listings in the face of increasing competition from mainland China and New York. With the listing Xiaomi, which is based in Beijing but domiciled in the Cayman Islands, will have a market capitalization of $80 billion to $100 billion. Xiaomi was founded about eight years ago.
According to sources unveiling of the Initial Public Offering could take place as early as late June. Per a prospectus issued by Xiaomi the smartphone maker is demonstrating resilience despite a slowdown in the global mobile market. Part of the reason for this is the push by Xiaomi into overseas markets such as India.
In 2017 Xiaomi generated revenues of approximately $18 billion and this was an increase of 67.5% compared to the prior year. Operating profit also rose year-over-year from 3.79 billion yuan to 12.22 billion yuan. However in 2017 Xiaomi recorded 43.49 billion yuan as net loss compared to 491.6 million yuan in profits that were recorded in 2016.
Besides smartphones the Chinese tech firm also builds Internet of Things devices including rice cookers, air purifiers and scooters. In China Xiaomi has a loyal following though there are concerns as to whether the smartphone market can replicate this in overseas markets.
With regards to its internet services Xiaomi enjoys healthy gross margins with figures from last year being 60%. These internet services include advertising and gaming that are offered on MIUI, its user interface. By the end of the quarter which ended in March the number of monthly active users on the user interface was 190 million. However the margins from the smartphone business are razor-thin. In 2017 Xiaomi’s smartphone business gross profit margins were just 8.8% paling in comparison to the internet services business.
“Xiaomi markets itself as an internet company, its valuation is closely linked to whether the market buys this concept. Otherwise, as a smartphone brand, Xiaomi couldn’t reach (such) a high valuation with what’s on paper,” said Mo Jia, an analyst at Canalys.