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The key lies in the pit: Xiaomi postpones the release of CDR behind

via:CnBeta     time:2018/6/21 10:31:56     readed:530

As we all know, Xiaomi has been controversial about Xiaomi’s business model, financial performance, valuation, etc. since Xiaomi released its Hong Kong and domestic prospectus for China. For this reason, the CSRC is also extremely cautious about Xiaomi’s updated CDR prospectus. For example, the official website of the CSRC previously disclosed Xiaomi CDR feedback and Xiaomi’s updated CDR prospectus. The appraisal committee issued feedback on Xiaomi’s CDR application and listed a total of 84 questions with a number of words exceeding 20,000 words, far exceeding the 20 or 30 questions of conventional IPO companies. Xiaomi’s CDR was issued from various links. Strict inquiries concerning millet need to supplement the disclosure of each round of preferred stock financing amount, valuation, and total amount of preferred stock financing to achieve the basis for “qualified listing” and provide relevant articles and contents in the Articles of Association and Preference Shares Agreement for achieving qualified listing. .

In addition, the China Securities Regulatory Commission also asked Xiao Mi to explain in detail the origin and development of the preferred stock financing, including the basis for the corresponding valuation, the determination basis and reasonableness of the valuation terms in the redemption clause. More importantly, the feedback also questioned the self-positioning and business model of Xiaomi’s “Internet company”, asking the issuer to combine the company’s main products, business nature, revenue share, and profit sources, indicating that the company is positioned as the Internet at this stage. Whether the company, rather than the hardware company, is accurate; the company is positioned as a technology revitalization company with hardware draining and Internet cashing. In the light of the combination of the company’s Internet access methods, whether it can obtain customers through hardware, whether it can gain access through other Internet methods, and the growth trend and penetration rate of domestic smart phones, the issuer will indicate the future trend of Internet realisation, business growth, and availability. The ability to continue to grow in the future. So what is the truth?

I wonder if the industry has noticed that the CSRC's question about Xiaomi has repeatedly mentioned the concept of preferred stock because it is not only related to the interests of current and future Xiaomi investors, but also to many key issues such as Xiaomi’s business model and positioning. There are numerous links.

As we all know, with financial innovation, with the rise of the private equity industry. In the process of venture capital investment, in order to protect the risk of investing in corporate funds during the start-up phase, the risk is minimized. They invented an investment that is both stock-like and debt-like. American name day: convertible redeemable preferred stock. This millet's first 18 rounds of financing are all similar investments. Do not underestimate this type of investment, and its changes directly affect Xiaomi's financial performance (whether it is profit or loss).

Related to the above, according to Xiaomi's prospectus, Xiaomi Group’s operating net profit in 2017 was 3.812 billion. If we add RMB 6.317 billion in the fair value of investment, the net profit after tax would be 10.183 billion. However, if the loss of the fair value change of the convertible redeemable preferred stock is added to RMB 54.072 billion, the above profits will be reversed to a huge loss of RMB 43.889 billion. Therefore, whether Xiaomi is a profitable company or a huge loss-making company is not only confusing to the industry but also to the CSRC.

In this regard, there are industry insiders believe that from the perspective of accounting, if the preferred stock is seen as "shares", then its fair value changes should not be related to the company's profit and loss, profit and loss is only the shareholders' profits and losses. However, because it is redeemable, the nature of the "stock" becomes a "debt". As a "debt," the increase in its fair value will become a company's loss when the investor redeems. But because it can be converted to "stock," it is not a pure "debt." If the holder of the preferred stock chooses to convert the stock instead of redeeming it, then the fair value change will not affect the profit or loss of the company.

Next, because Xiaomi’s huge shareholder equity is negative, Xiaomi’s operations are mainly supported by huge debts. At the end of 2017, the balance of liabilities was 217.08 billion yuan, including non-current liabilities including preference shares of 1.699.48 billion, accounting for 78.28% of the total liabilities. The current liabilities mainly represented by accounts payables and notes were 47.133 billion yuan, accounting for 21.71% of the total liabilities.

Among the aforementioned liabilities, the long- and short-term loans provided by banks and financial institutions amounted to 10.853 billion yuan, which is close to 5% of the total liabilities. This is also an important supporting force that can support the company to reach the present under the premise of huge negative assets. It is not so important that banks provide loan support. It is better to say that banks are more important for small credit endorsements. Of course, this can also reflect Xiaomi's superior financing ability and superb capital operation skills, but it is still difficult to hide its "burn money" operation essence.

Look at the valuation and positioning, in fact, the dispute about the valuation of millet between the relevant workshops may not be groundless. The so-called valuation must withstand the test of financial data. According to the data released by the Xiaomi Hong Kong stock prospectus, in 2017, Xiaomi’s adjusted net profit was 5.36 billion yuan (equivalent to 836 million U.S. dollars). Even though, according to the most widely reported value of 68 billion U.S. dollars, Xiaomi’s price-earnings ratio reached 81%. Times. In contrast, Apple’s company is 17 times similarly listed on Hong Kong stocks.Tencent45 times.

In addition, according to the prospectus, Xiaomi’s smartphone hardware revenue was 48.764 billion yuan in 2016, 80.563 billion yuan in 2017, an increase of 65.2% year-on-year; IoT and consumer products business revenue was 12.415 billion yuan in 2016, 2017 The year was RMB 23.448 billion, an increase of 88.4% year-on-year; the Internet service business had a revenue of RMB 6.537 billion in 2016 and RMB 9.896 billion in 2017, an increase of 51.38% year-on-year.

Through this comparison, we can see that in the three major businesses of Xiaomi, both the revenue base and revenue growth rate, Internet services are at the bottom. In particular, the growth rate of revenue is still less than the increase in hardware revenue in the previous period, under the premise of significantly sacrificing the profit of hardware. So when will Xiaomi’s Internet revenue become the backbone of Xiaomi’s revenue and make Xiaomi a veritable Internet company? It is also worth emphasizing here that if Xiaomi cannot change the high cost as quickly as possible, low-margin hardware will gain the pattern of Internet users and service growth, or find the best balance between the two, even if it is the title of the Internet company. It is difficult to make Internet services a major source of revenue and profit.

It should be noted that, from the marketing and promotion of millet visible in the market, it can be inferred that the increased costs of Xiaomi are basically from the hardware (smartphone, IoT and consumer products business), that is, Xiaomi’s hardware has drastically lowered the millet. Or the overall profitability of Xiaomi's Internet business. So is Xiaomi's practice of acquiring Internet users and services with high-cost, low-margin hardware to prove that he is an Internet company is a business model that can form a virtuous circle? At least not from the current facts.

From this point of view, Xiaomi deliberately intensified his Internet properties, is the result of careful calculations. However, it must also be noted that many new economic companies listed in Hong Kong have fallen sharply and have even fallen below the precedent of the issue price. For example, the recent well-publicized doctors of Hong Kong stocks listed on the stock market fell below the issue price on the following day. Prior to this, listed companies such as Zhong'an Online, Yuewen Group, Yixin Group, Razer and other new economic companies in a short period of several months were earlier than the initial public offerings. The sharp drop in the high point and some even fell below the issue price. This situation is in stark contrast to the hot buying scenario at the time of issuance, which has caused investors to worry about the high valuation bubbles of the new economic companies.

In this regard, the China Securities Regulatory Commission clearly stated that risks, innovation companies have large investment, high risk, easily subverted, and other characteristics, coupled with the A shares have always been speculation in new stocks, speculation themes, innovative companies may appear in the early stages of being listed after the speculation The risk of a big drop back. Deloitte believes that at present, A-shares are mainly retail-based, and regulators need to weigh trade-offs and investor protection. It is expected that CDR will be launched in the second half of this year, but progress will be slower than expected. At the same time, foreign media reported that Xiaomi delayed issuing CDR plans because of valuation issues. According to sources, the valuation will be reduced to 55 billion to 70 billion U.S. dollars, and the new valuation implies that it will have an initial figure of 90 billion U.S. dollars. 22% to 39% discount.

In summary, we can easily see that there are many so-called “pits” that are inconsistent with the facts in the interpretation of the key issues that millet prospectus is concerned about in many industries, and that Xiaomi’s “holes” are under the strict interrogation of the Securities Regulatory Commission in the short term. It is difficult to justify itself, so it is wise and even more helpless to proactively propose to postpone the issuance of CDR.

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