By Brian Lantier, CFA
NASDAQ:VIOT
READ THE FULL VIOT RESEARCH REPORT
Viomi’s (NASDAQ:VIOT) outlook for 2026 remains robust but the lack of a renewal of the “new-for-old” subsidy program in China has become a major focus of investors.
Since Viomi reported full first-half results in mid-November, Viomi's shares have been under considerable selling pressure and have significantly underperformed both its domestic peers and the broader indexes. There has been no single event or catalyst that explains the weakness in the shares, but in our opinion, it is the result of several unrelated events.
1. The majority of Viomi's public competitors are based in China and listed on Chinese markets, in contrast to Viomi, which trades on the NASDAQ. There appears to be more negative sentiment among U.S.-based investors toward companies focused primarily on selling to Chinese consumers, which has depressed both the broader small-cap Chinese indexes and many NASDAQ-listed names.
2. There appears to be some concern in the market that broadline appliance companies based in China with greater portfolio diversification are exerting pricing pressure in the domestic market to gain share, but we have not seen evidence of this yet.
3. While demand for in-home water purification in China is likely to remain strong for the foreseeable future, and as the company's installed base grows, the sale of replacement filters should continue to drive recurring revenues, there are concerns in the market that subsidies for water filtration systems in China pulled forward demand from future years. When coupled with the prospect of weak consumer spending in China and particularly weak investment spending on home renovations in 2025 (down 1-2%), the short-term outlook for this market is a bit depressed.
4. Finally, the company’s largest customer, Xiaomi (OTC:XIACF, SEHK:1810) has seen its shares fall sharply over the past 4 months and we feel that Viomi’s shares are likely trading in sympathy with Xiaomi.
Near-term catalysts that may change investor sentiment:
- The company will likely report second-half 2025 results in the next 60 days. While we anticipate that the phaseout of the subsidies likely impacted second-half results to some degree, the company should still be able to provide an updated growth plan for domestic growth and international expansion.
- The company will likely update the status of its stock buyback program. The average price of the company's first purchases under the stock buyback program was $2.45/ADS, and with the stock trading almost 45% below that value today, we think it is possible that the company will be actively utilizing this buyback to reduce the total number of ADS's outstanding.
- The company has shown a commitment to enhancing shareholder value through both the current buyback and the special dividend paid in August 2025, and we think that commitment will continue, which may signal to investors management's confidence in Viomi's core business outlook.
However, ultimately, we feel that as long as Xiaomi remains the company's primary customer, investors will link the two companies together, and when Xiaomi outperforms, Viomi's outperformance is likely to be even greater, and when Xiaomi underperforms, Viomi is likely to be even weaker.
We would encourage investors to review our full updated report with additional details on international expansion efforts and the competitive landscape.
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