Here's how Xiaomi can still become the world's most expensive phone maker

Even after dialling back its valuation ambitions, Xiaomi Corp. still has a shot at becoming the world’s most expensive major maker of phone gear.

The Chinese smartphone brand is marketing shares in its Hong Kong initial public offering at as much as 51.3 times this year’s estimated earnings, a person with knowledge of the matter said. That valuation, which assumes an over-allotment option is fully exercised, would be the highest for any communications equipment vendor globally with a market capitalization of at least $10 billion, according to data compiled by Bloomberg.

Xiaomi is seeking a valuation that’s more than triple the multiple Apple Inc. trades at, the data show. It would also represent a premium to major Chinese internet companies like Tencent Holdings Ltd. and billionaire Jack Ma’s Alibaba Group Holding Ltd.

Pricey Shares

Xiaomi seeks valuation premium to rival phone brands, internet companies

The banks arranging Xiaomi’s IPO are pitching the company as a fast-growing firm that started as a phone brand and has since expanded into smart home gadgets and highly profitable internet services. Analysts at Morgan Stanley, which is one of the IPO underwriters, have argued the company should also fetch richer multiples than consumer hardware makers like Fitbit Inc. and GoPro Inc.

Even sliced a different way, Xiaomi is seeking a significant premium. If you base the comparison on 2019 profit forecasts, Xiaomi’s IPO price range translates into 22.7 times to 29.3 times earnings, people with knowledge of the matter said. At the high end, that’s still more than twice as expensive as Apple and a bit pricier than the 28 times earnings multiple of Tencent, China’s biggest internet company.

A representative for Xiaomi said she couldn’t immediately comment on the earnings multiples.