(Yicai Global) Aug. 28 -- Shares of Xiaomi, a leading Chinese smartphone maker, are trading at record highs despite soft earnings as rival Huawei Technologies' troubles are expected to benefit the firm.

Beijing-based Xiaomi [HKG: 01810] reached a new intraday peak of CNY23.85 [USD3.48] today, before closing 5.4 percent up at CNY22.50. The stock has climbed 24 percent this week.

Investors are focused on Xiaomi's prospects more than its earnings, Lin Meibing, chief analyst of market research firm Wit Display, told Yicai Global. A researcher at Futu Securities echoed that opinion.

Xiaomi's net profit fell 7.2 percent to CNY3.4 billion (USD493.7 million) in the quarter ended June 30 from a year ago, it said in an earnings report published on Aug. 26. Revenue rose 2.9 percent to CNY53.5 billion (USD7.8 billion).

If Huawei's mobile phone business is severely encumbered by a shortage of chips that would provide Xiaomi with new growth opportunities, Lin said.

The US Commerce Department on Aug. 17 expanded restrictions on Huawei's access to chips made by foreign companies using US software or technology. The Trump administration also added 38 Huawei affiliates in 21 countries to the US government's economic blacklist, raising the total to 152 since Huawei was first added in May last year.

A number of investment banks, including Goldman Sachs, Citic Securities, and Morgan Stanley, have raised their share price targets for Xiaomi or issued 'buy' ratings based on the idea that the company could expand its market share in China on the back of Huawei's chip supply problems. 

But Lin also noted that chip access will not become an issue for Shenzhen-based Huawei for at least six months, with Xiaomi's low domestic market share continuing for at least some time.

The analyst at Futu Securities also pointed to Xiaomi's growing overseas market share, advantages in Internet of Things and stable internet monetization as positives.

Chairman and Chief Executive Lei Jun has stressed Xiaomi's artificial intelligence of things strategy each year for the past three years, but the firm has not made any qualitative changes despite progress in device connectivity every year, Lin noted. So the firm needs more time to achieve a breakthrough in AIoT.

Xiaomi shares were sluggish for more than one year after the firm listed in July 2018 because of market pessimism. Its stock price began to gain favor this year and has been rising rapidly, though the firm reported declines in first-half mobile phone revenue and net profit.

In the second quarter, smartphone revenue fell 1.2 percent to CNY31.6 billion from a year earlier, while smartphone sales fell 11.8 percent to 28.3 million units. The gross profit at Xiaomi's mobile phone business was CNY2.3 billion, less than the CNY2.6 billion a year ago, with gross profit margin narrowing from 8.1 percent to 7.2 percent.

Editors: Tang Shihua, Peter Thomas