$XIAOMI-W(01810.HK) One sign of Xiaomi's every surge is that the company has conducted a placement. At the end of 2020, Xiaomi carried out a similar operation, using the “old first, new later” method for placement and issuance.

The core operation is: the major shareholder first sells the existing shares they hold to the placement institution, and then the participants in the placement give money to the listed company; afterward, the listed company issues the same number of new shares to the major shareholder who sold the old shares.

After this operation, the number of shares held by the major shareholder remains unchanged, the listed company raises funds, and the participating institutions can quickly obtain shares. Because the speed is fast, the discount will be lower. Typically, the discount is between 5-10%.

The first time this operation was conducted was at the end of 2020 when Xiaomi's stock price fluctuated around HKD 26, which was considered a relatively high position at that time. After the financing, the company first reached 30+, and then, along with the market trend and its fundamentals, it fell to 10+ HKD.

This time, the operation is similar: a valuation of HKD 57 is relatively high, with a discount of about 6%, diluting the share capital by approximately 750 million shares, equivalent to a 3% dilution of the total share capital before dilution.

Due to the current high market value, from the perspective of the controlling shareholder, the dilution of its equity is relatively small, making it a good financing opportunity.

However, from Xiaomi's experience, similar high-level targeted placements usually indicate that the stock price has also reached a high level.

According to media reports, this placement is mainly to accelerate business expansion and invest in research and development... basically all just platitudes.

However, looking at the timing of the two placements, the one in 2020 was mainly about high-end and internationalization. This time, it is highly likely to be used for investment in automobiles.

But from the perspective of capital reserves, Xiaomi, like last time, does not seem to lack money: cash + deposits + investments amount to 140 billion RMB, of which 77 billion is short-term, and nearly 42 billion in cash and cash equivalents. Last year, despite investments in automobiles, the operating cash flow for the year was nearly 40 billion RMB.

In the recently released financial report, the capital expenditure for automobiles in 2024 is 4.1 billion RMB, and the company's total capital expenditure is around 10.5 billion. Since the company will continue to build factories and manufacture cars in 2025, although the company did not mention the Wuhan factory in the conference call, it has already been widely rumored.

Even if this year's capital investment doubles, the company still has sufficient cash flow to invest.

Therefore, this financing appears to be a way to "gather resources on a sunny day" in preparation for unforeseen needs on a rainy day.

Of course, the placement itself can easily lead to the stock price opening lower close to the placement price, but in the long run, it still depends on the company's execution ability, whether it can allow small shareholders to sacrifice short-term interests for longer-term returns.