Xiaomi gains $6 billion in a rebound from weak Hong Kong debut

In the long run, Xiaomi still needs to convince investors it’s capable of shedding a reliance on cheap phones and becoming an internet giant.

Xiaomi Corp. surged 13% a day after its disappointing debut, gaining roughly $6 billion of market value as investors begin to pile into the world’s third-largest listed smartphone maker.

An advertisement for Xiaomi is displayed at a subway station in Hong Kong Monday. (AP Photo)

The Chinese company finished Tuesday at HK$19, well above its HK$17 initial public offering price. About HK$9.7 billion ($1.2 billion) worth of shares changed hands, more than the value traded during its debut. That rebound more than made up for Monday’s 1.2% decline: the worst first-day performance by a $1 billion-plus Hong Kong IPO since 2015.

In the long run, Xiaomi still needs to convince investors it’s capable of shedding a reliance on cheap phones and becoming an internet giant. The company now faces intense scrutiny while it tries to prove it should be twice as expensive as Apple Inc. It’ll need to show in future financial results that it can squeeze more profit out of non-smartphone businesses from rice-cookers and scooters to online content.

“It’s mostly a smartphone company, or hardware company because they do other things as well,” said Daniel Baker, an analyst with Morningstar Investment who’s got a sell rating and a target price of just HK$10 on Xiaomi. He wouldn’t speculate on Tuesday’s spike. But “if they can develop some sort of ecosystem across the IoT spaces as well as the smartphone spaces, then it might well develop some sort of switching cost and a real way to increase returns and margins.”

On the brighter side, it was announced that Xiaomi would join the Hang Seng Composite Index on July 23 and a clutch of FTSE indices from July 16, as proposed earlier.

--With assistance from Sofia Horta e Costa