By
Chimamanda U. Martha
December 28th, 2023
Chinese smartphone maker Xiaomi Corp said it will buy back up to HK$12 billion worth of its shares. The decision comes after the company scrapped share offering in mainland China.
The stock of the Chinese smartphone maker Xiaomi Corp seems to be answering to news of the buyback, its biggest, by climbing nearly 7%. Last week the company announced an HK$12 billion (US$1.53 billion) share buyback plan in a reversal of its cash-management strategy that is aimed at boosting its floundering stock. At the time of writing Xiaomi shares jumped as much as 4.19% to HK$8.7.
The company had discarded an already detained plan to offer equity in China, that supposed to attract mainland investors who want to pay their way to the global companies. The company said at the times that they have enough money and that their plain is to focus on business development.
Shares of Xiaomi were last year listed on Hong Kong stock exchange and since then, they have lost almost a third of their value and now are at half their initial public offering price. This came mostly as a result of the company’s slowing growth and increasing competition.
The stock has also been hurt by losses the Hong Kong stock market suffers from especially after the massive anti-government protests started in the city in June. Companies on the city’s exchange have all together lost more than $152 billion in value since June.
Speaking of the buyback, Morningstar analyst Dan Baker said he thinks this should give investors more confidence to buy the stock because it shows how confident management is in the sustainable cash-generating capabilities of the company.
Baker added the plan to offer shares in the mainland was likely more pointed out onto getting a higher valuation within the Chinese market than it was about raising funds itself. He said the buyback announcement obviously shows the company has enough cash.
As of the end of the June, Xiaomi had cash and cash equivalents estimated to 34.9 billion yuan ($4.92 billion) and total borrowings of 13.8 billion yuan. The company generated positive cash flow of around 11 billion yuan in the June quarter.
In their stock exchange filing company wrote:
“The board believes that a share repurchase in the present conditions will demonstrate the company’s confidence in its own business outlook and prospects.
Xiaomi’s current financial resources will enable it to implement the repurchase while maintaining a solid financial position.”
Even though the Beijing-based company had previous sharp rise, it has slowed drastically along with the shrinking of the global smartphone market and growing of the number of the local competitors.
According to research firm Canalys, Xiaomi’s market share in China declined by a fifth in the April-June quarter. Only for somparison, market share of smartphone giant Huawei Technologies rose by 31%.
It seems that Xiaomi’s attempts to break through to higher-margin internet services in order to enhance thin margins on its smartphones, has pretty much-disappointed investors as it has fought to squeeze more money out of its growing number of users.
Still, their cheap smartphones have stayed popular among Indian consumers, who are buying more phones thanks to easier access to data. We already mentioned that they announced the launching of Mi Credit service in India, offering loans up to 100,000 rupees which is somewhere around $1,451. The interest rates are starting from 1.8%.