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Here is why Lie Jun's Xiaomi may be twice as expensive as Steve's Apple

Bloomberg/ 12 Jun 18 | 10:49 PM

Xiaomi founder Lei Jun. Analysts credit Xiaomi’s success to offering “world-class products" at low prices

Chinese serial entrepreneur Lei Jun has been compared with Steve Jobs. Now, analysts are saying the smartphone giant he built could be twice as expensive as Apple.

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Xiaomi deserves to trade at a premium to global phone brands due to its market-share gains and faster growth trajectory, according to research from Morgan Stanley, one of the banks leading its Hong Kong IPO. The Beijing-based company has a fair value of about $65 billion to $85 billion, translating into around 27 times to 34 times forecasts for its 2019 adjusted earnings, Morgan Stanley wrote in a report this week.

That’s roughly double Apple’s valuation of 14.5 times estimated 2019 adjusted earnings, data compiled by Bloomberg show. Xiaomi should also fetch richer multiples than rival smart hardware makers like Fitbit  and GoPro, as well as some major Chinese internet firms including Alibaba Group Holding and Baidu, according to Morgan Stanley.

While such pre-deal research is prepared by a bank’s equity analysts, not their investment bankers, it may provide a clue into how Xiaomi plans to sell its growth story. Xiaomi, which has been planning to seek about $10 billion, is considering raising about half that from its Hong Kong IPO and the other half from an offering in mainland China, people with knowledge of the matter have said.

Xiaomi could be valued at as much as $92 billion given the strong growth in its cash flows beyond 2020, JPMorgan Chase wrote in a separate report. Its success is based on offering “world-class products" at low prices while selling high-margin services, according to CLSA. Adjusted earnings before interest and taxes at Xiaomi could rise at a compound annual growth rate of 58 per cent annually over three years, hitting 29 billion yuan ($4.5 billion) by 2020, CLSA estimates. 

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