Xiaomi plans repurchase of $ 1.5 billion to stop the stock fall
SHANGHAI: Chinese smartphone manufacturer Xiaomi Corp announced on Tuesday a share buyback plan of HK $ 12 billion ($ 1.53 billion), in a reversal of its cash management strategy that aims to boost its declining shares.
Xiaomi shares responded to news of the buyback, its biggest, by climbing nearly 7%.
Last week, the company rejected an already delayed plan to offer shares in China, a measure aimed at attracting investors from the continent hungry to buy from global companies. The company said it had enough money and would focus on business development.
Shares of Xiaomi, which listed in Hong Kong last year, have lost nearly a third of their value this year and are at half their initial public offering price, hurt by the company’s sharply slowing growth and increased competition.
The actions were also affected by losses in the Hong Kong stock market, which has plummeted since the mass protests against the government in the city began in June. The publicly traded companies have collectively extracted $ 152 billion in value since June.
I think it should give investors more confidence to buy the shares because it shows management's confidence in the company's sustainable cash-generating capabilities, said Morningstar analyst Dan Baker, referring to the buyback.
Baker said the plan to offer shares in the continent was likely aimed at obtaining a higher valuation in the Chinese market than it was about raising funds. The repurchase announcement shows that the company has enough cash, he said.
Xiaomi had cash and cash equivalents of 34.9 billion yuan ($ 4.92 billion) as of June 30 and total borrowings of 13.8 billion yuan. The company generated positive cash flow of roughly 11 billion yuan in the June quarter.
“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 said in a stock exchange filing.
Xiaomi’s current financial resources will enable it to implement the repurchase while maintaining a solid financial position, it said.
Growth in the Beijing-based company has slowed sharply as the global smartphone market has shrunk and local competition has increased.
Xiaomi’s market share in China declined by a fifth in the April-June quarter even as that of smartphone giant Huawei Technologies surged by 31%, according to research firm Canalys.
Xiaomi’s efforts to push into higher-margin internet services - to complement razor thin margins on its smartphones - has also disappointed investors as it has struggled to wring more money out of its growing number of users.
But their cheap smartphones have remained popular among Indian consumers, who buy more phones thanks to easier data access. The company will also soon launch a consumer loan business in the country, but faces data privacy issues and competition from US technology giants. UU.
Xiaomi shares jumped as much as 6.8% to HK $ 8.92 on Tuesday.