The US Department of Defense, on Jan 15, declared Xiaomi a “Communist Chinese military company” under the Trump administration, which should result in “near-term pressure” on the stock, says the team OCBC Investment Research on Jan 18.
While that is unlikely to translate into any material operational impact, OCBC says the larger downside risk could come in the form of the US’s Department of Commerce’s Entity List, though that “is not the case for now”.
Separately, Honor, a smartphone brand owned by Shenzhen Zhixin New Information Technology, has re-entered the market following its sale from Huawei in November 2020.
According to reports, Honor is considering cooperating with Qualcomm and potential Mediatek, which could mean the addition of another competitor for Xiaomi.
SEE: Xiaomi gains on US restrictions on Huawei: OCBC Investment Research
“In spite of this, we maintain our view that Xiaomi will continue to gain market share domestically, especially as it looks to aggressively expand its offline distribution channels this year,” says the team.
“Still, valuations do not point to an attractive risk-reward dynamic at this juncture, given that it is trading slightly above the high end of its historical trading range, coupled also with the near-term developments as outlined above,” it adds.
The team, which gave Xiaomi a “hold” rating, noted that it would look for a more attractive opportunity to gain incremental exposure, given that Xiaomi has risen 152% since the brokerage’s upgrade to “buy” in May 2020.
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No fair value was given in the same report.
As at 9.50am, shares in Xiaomi are trading 20 HK cents lower or 0.63% down at HK$31.75.
