Xiaomi’s share surge falls victim to investor worries over outlook for Chinese tech firms

The smartphone maker posted strong results in its first financial report as a publicly traded company, but concerns over the impact of the US-China trade war and poor results for other tech firms have soured sentiment

PUBLISHED : Thursday, 23 August, 2018, 5:45pm
UPDATED : Thursday, 23 August, 2018, 5:45pm

Shares in Chinese smartphone maker Xiaomi briefly surged as much as 7 per cent in Hong Kong on Thursday after its first-half profit topped market forecasts, but lingering concerns over the outlook for China’s tech giants saw it shed all the gains by the end of trading.

Xiaomi, which went public in Hong Kong on July 9, rose to as high as HK$18.96 in the morning session, before closing at HK$17.44, down 1.4 per cent. The benchmark Hang Seng Index dropped 0.5 per cent to 27,790.46. Xiaomi shares had risen for four sessions before Thursday.

In its first financial report as a publicly traded company, Xiaomi said net profit reached 7.65 billion yuan (US$1.1 billion) in the first six months of 2018, rebounding from a loss of 19.8 billion yuan in the same period a year earlier. Revenue increased 75 per cent to 79.6 billion yuan.

“Xiaomi has had a strong second quarter, and analysts are happy about its performance. But the current market environment is weak,” said Alvin Cheung, associate director at Prudential Securities.

He expected the US-China trade dispute to continue haunting the market. The US has targeted Chinese technology firms in the tariffs it has imposed, raising concerns over the future business outlook for the sector.

Xiaomi reports profit in maiden quarterly earnings result post IPO

Many analysts were positive towards Xiaomi after the results. Goldman Sachs maintained a buy rating for the stock and a target price of HK$22, saying key metrics were above its expectations, while CLSA, a Hong Kong-based investment bank owned by Citic, predicted Xiaomi’s revenues would grow at an annual compound growth rate of 47 per cent for the next three years and set a target price of HK$22.30.

JP Morgan, Morgan Stanley, Macquarie and CICC were also optimistic, with target prices ranging from HK$20 to HK$30.

Nonetheless, Xiaomi is up against weak sentiment in Hong Kong towards tech socks, with the poor results of some other companies adding to the concerns over the impact the trade war may have.

Earlier this month, internet conglomerate Tencent posted its first profit decline in 13 years as its online gaming revenues slowed. Its stock dropped 0.1 per cent on Thursday to HK$359, and it has lost 25 per cent since its peak in January, shedding HK$1.1 trillion (US$140 billion) in market value.

Tencent posts first profit decline since 2005 on lower gaming revenue, investment gains

AAC Technologies, which supplies acoustic components to smartphone makers like Apple, tumbled 4.2 per cent Thursday after it posted a 16.4 per cent drop in net profit for the first half, below market forecasts. The weak earnings prompted a number of investment banks to cut their target prices for the company, including Bank of America Merrill Lynch, Credit Suisse and Citi.

Sunny Optical Technology, which manufactures camera modules and lenses for smartphones, fell 1.3 per cent on Thursday to HK$93.40. Last week it reported first-half profit growth that was well below expectations.