Published: Thu, May 03, 2018
Markets | By Terence Owen

Xiaomi files for mega Hong Kong tech IPO, lifts lid on financials

Xiaomi files for mega Hong Kong tech IPO, lifts lid on financials

While Xiaomi is present in 74 countries and regions, it is yet to crack the US smartphone market, something that it intends to do this year.

Smartphone and connected device maker Xiaomi filed for a Hong Kong initial public offering on 3 May, in what is expected to be one of the largest listings by a Chinese tech company in nearly four years.

The company is taking advantage of changes by Hong Kong that allowed companies with different share classes to list.

But Bloomberg News, citing people with knowledge of the matter, reported that it was expected to be worth at least $10 billion and could value the business as high as $100 billion. Beyond the year's largest IPO - and the world's largest raise since Alibaba in NY in 2014 - the listing could make Xiaomi China's third largest technology company based on market cap.

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Announcing the same, the consumer electronic company gave investors the first detailed look at its financial position ahead of the much talked IPO. The numbers underscore how Xiaomi has remained resilient even as the global smartphone market has slowed, helped in part by a push overseas into markets like India. Revenue however surged 67.5 percent to 114.5 billion yuan past year. Operating profit rose sharply from 3.79 billion yuan in 2016 to 12.22 billion yuan a year ago. Operating profit jumped to CNY 12.2 billion from CNY 3.8 billion in 2016, while the net result was a loss of CNY 43.9 billion due to valuation charges for convertible shares. Its relatively cheap handsets pose a rising challenge to market leaders Samsung Electronics Co Ltd and Apple Inc.

That would catapult Xiaomi, founded in 2010 by serial entrepreneur Lei Jun, past Baidu and JD.com to become the third-biggest Chinese technology company by value, after Tencent Holdings and Alibaba Group Holding. The company has a strong presence in China, Europe and other APAC countries, but it aspires to prevail in the U.S market where it struggles. According to some analyst estimates, Apple's flagship iPhone X and iPhone 8 have gross margins of around 60 per cent.

Xiaomi also indicates it is looking to make money from internet services, which includes advertising, games and music/video streaming services like Mi Music and Mi Video - which the company launched in India on Wednesday. At US$10 billion, Xiaomi's IPO would also be the 15th biggest of all time, or the fourth-largest in Hong Kong. The company has apparently invested heavily in the past year leading up to the IPO.

Dual-class shares have been a contentious topic in Hong Kong since the city's strict adherence to a one-share-one-vote principle cost it the float of Alibaba, which instead listed in NY.

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