Author: Li Jun
Affected by the weak market in Hong Kong stocks, Millet Group - W (hereinafter referred to as "millet") closed down 4.9% to HK$13.58, down more than 20% from the issue price of HK$17, closing at HK$306.6 billion, or US$39.1 billion.
Just three months ago, Lei Jun, founder of millet, promised at a celebration banquet on July 10 that "investors who bought millet stocks on the first day of the listing will make twice as much money". Millet has fallen by more than 20% compared with its offering price. Despite its impressive six-month results, Millet seems to be getting further and further away from Lei Jun's promise to double its share price.
The market has been debated whether millet should be valued according to the standards of Internet Co or hardware companies. In addition, the growth peak of smartphones has passed, the decline in global shipments in 2018 is an inevitable trend, millet relies on one of the important markets, India and other emerging market currencies have fallen sharply, what impact will this have on millet performance?
Technology stock market tide capital diversion
The collapse of millet has left many sellers' organizations in the dark. After the listing, share prices failed. What happened to millet?
Most market participants believe that, on the capital side, the tide of technology stocks listing in Hong Kong market diverted funds, millet has not been included in the scope of Hong Kong stock exchange, the lack of funds from the Mainland, have triggered a sharp drop in millet.
Previously, research institutes including Deutsche Bank, Macquarie Capital, Everbright Securities and Southwest Securities all seemed to believe Lei Jun's "doubling" argument. Since the listing, the research papers have all given millet "overweight" or "buy" ratings, targeting prices ranging from HK$19.6 to HK$30.3, and share prices follow suit. Institutional forecasts are far apart.
In response, a fund manager from Shanghai, Shenzhen and Hong Kong in South China told the first financial reporter that after the successive interest rate hikes in the United States, overseas liquidity has actually tightened, and a number of new economic and technological stocks, such as the American Youth Group Review (03690.HK), will be landed in the Hong Kong stock market one after another, creating a diversion of the market with inadequate capital, allowing Internet companies in the new economy. Share prices fell; on the other hand, mainland funds were unable to meet millet in Hong Kong and other "different rights of the same share" enterprises, also on the stock price pressure.
On July 14, the Shanghai Stock Exchange and the Shenzhen Stock Exchange jointly issued the Notice on the Relevant Arrangements for the Transfer of Shares of the Interlinked Hong Kong Stock Exchange (hereinafter referred to as the Notice). Shares of companies with different voting rights structures will not be included in the scope of the shares of the Hong Kong Stock Exchange under the Shanghai-Hong Kong and Shenzhen-Hong Kong Communications.
The notice means that mainland funds will not be able to invest in Hong Kong through Hong Kong stocks. From halting the issuance of CDRs to being unable to be included in the Hong Kong stock market, mainland investors have basically no ideal channel to invest in millet, a new economic enterprise.
In addition to financial factors, the decline in millet is also related to the final valuation, although Lei Jun called millet business model "unique".
Hardware revenue is growing faster and valuations are controversial.
Around the launch of millet, there has never been a breakthrough in the debate over its valuation; from the initial so-called "hundreds of billions of dollars" valuation to the present market value of less than 40 billion dollars, one of the key points is that millet should be valued according to the standards of Internet companies, can reach nearly 50 times P/E ratio, but also According to the valuation of Hard Suits Inc, which is similar to small household appliances, the P / E ratio is more than ten times?
According to the Millet Semi-annual Report, "IoT and consumer products" business revenue increased by 104.3% from $5.1 billion in the second quarter of 2017 to $10.4 billion in the second quarter of 2018, mainly due to smart TV and notebook computers. Internet services revenue increased 63.6% from $2.4 billion in the second quarter of 2017 to $4 billion in the second quarter of 2018, mainly due to increased advertising revenue. MIUI's monthly active users exceeded 200 million in June 2018.
Thus it can be seen that the company's Internet business revenue growth rate and total, are far less than the growth and size of hardware revenue.
IDC said that in the second quarter of this year, the average price of the smartphone market increased by 15% over the same period last year. This suggests that consumers are willing to pay more for mobile phones that meet their needs, not only better cameras, but also emerging categories such as games.
In the second quarter of 2018, the average selling price of millet smartphones was 952.3 yuan, compared with 863.8 yuan in the second quarter of 2017. "The increase in average prices was mainly due to strong sales of mid-and high-end models such as millet MIX 2S and millet 8 in the Chinese market," the company said. However, the 10% increase in the average price is far less than the average level in the market 15%.
In this regard, a QDII fund manager in South China told the first financial reporter that the price of the millet phone was relatively low, the same level of hardware configuration is basically the lowest price in the industry, profit margin is limited, the real imagination space lies in the growth of IoT household goods sales of hardware. It's not surprising that the millet market has gained popularity before and after the listing, and new investments have been made after raising funds. If future performance growth slows down and competitors respond more, millet should eventually be valued in a growth model similar to that of small appliances.
On September 17, Lei Jun delivered a speech at the "2018 World Congress of Artificial Intelligence". Human beings have entered a new era of artificial intelligence. The breakthrough of artificial intelligence in Millet layout is in the field of IoT.
India rupee depreciates sharply, how does millet ensure market share?
Global smartphone shipments have fallen, and millet has focused more on emerging markets such as India, where smartphones are not yet fully available, under pressure from the depreciation of the Indian rupee and declining market share.
According to IDC statistics, global smartphone shipments in the second quarter of this year were 342 million units, down 1.8% from 348.2 million units in the same period last year. In the second quarter of this year, India's smartphone market pattern was 29.7% millet, 23.9% Samsung, 12.6% VIVO, 7.6% OPPO and 5.0% Transsion. Among them, apart from Samsung, the other are Chinese mobile phone manufacturers.
Although millet is still the No. 1 market in India, its market share in the second quarter has dropped by 0.6 percentage points from 30.3% in the first quarter. On the other hand, since the beginning of 2018, the RMB has fallen from around 9.75 to 10.72 rupees, and the depreciation of the Indian rupee has obviously put some pressure on millet. In addition, millet sales are more in emerging markets, where the growth rate of millet's performance has been questioned after the sharp depreciation of these market currencies this year.
In the first half of the year, millet's overseas revenue increased by 151.7% to 16.4 billion yuan, accounting for 36.3% of the total revenue, according to China-Thailand International. The cooperation between Flipkart and India e-commerce platform will help to further strengthen the market share in India. With regard to exchange rate fluctuations, millet can hedge some foreign exchange risks by means of forward and options, and it is expected that the share of overseas income will continue to rise.
"We will expand our categories in a planned and rhythmic way, and there are still hundreds of billions of markets waiting for us to fight through the battle, and continue to move from victory to greater victory; the international market is vast and promising. In the first quarter, the proportion of international business of millet has reached 36%. We should further promote internationalization and achieve international business revenue as much as half of all revenue as soon as possible. Only these three strategies ensure the future growth of millet. " Looking forward to the future, Lei Jun said.
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