XIAOMI: How much growth does China have to deliver!

Anything below annual economic growth of around 6% triggers an outcry in and outside China. In our view, this is massively exaggerated, because firstly, less is more in the long run, and secondly, such a pace inevitably leads to blatant undesirable developments, be it in the real estate market, in lending or elsewhere! Definitely, the +5.5% for 2022 seems illusory, but would the newly forecast +3% be that bad? On balance, no! But what the hell is riding Mr. Xi Jinping with his COVID zero tolerance strategy? Is there something fishy going on here in terms of viruses or is he trying to prove something to the world? When large parts of the economy are at a standstill or sputtering at a limited capacity, this inevitably leads to chaos. The virus seems to primarily infect brains: How on earth can companies be exempted from rent costs or contributions to social security! Also costs for gas, electricity and water are to be omitted for a limited time! With tax relief one could live still scarcely. The dangers rise... it live the potential! The latter withers in the short term (lockdowns), but exists in the long term!

So it is little surprise that even the well-positioned technology group XIAOMI can no longer resist the "pathological" measures... and slips into the loss zone in 1Q22. Not massively, but still. At -11%, XIAOMI posted its first revenue decline. The quarterly loss was YUAN 587.6 million (about USD 87 million), compared to a net profit of YUAN 7.79 billion (about USD 1.2 billion) a year earlier. However, the loss was also due to higher sales, marketing, research and development expenses. And XIAOMI could easily maintain the 3rd rank, behind Apple and Samsung. Once the lockdowns disappear, a lot of pent-up potential should be unleashed! The share price is definitely at the bottom at the current level. Hold out or buy is the order of the day! Target price: EUR 3.20!