It is forecast that 4Q22's adjusted net profit will decline by 70.5% year-on-year to 1.321 billion yuan. We expect XIAOMI Group's 4Q22 adjusted net profit to decline 70.5% to 1.321 billion yuan compared with the same period last year.
Pay attention to the main points
Demand for smartphones remains sluggish, and XIAOMI's market share remains third in 2022. According to Canalys,4Q22 XIAOMI, global smartphone shipments fell 27% year-on-year to 33.2 million units; 2022 shipments fell 20% year-on-year to 153 million units, and market share fell slightly 1ppt to 13% year-on-year. We believe that the decline in 4Q22 shipments is mainly due to the sluggish market demand and the continued destocking of the company; as for ASP, the company released the new generation of digital flagship mobile phone XIAOMI 13 series in December, which we expect to lead to a steady increase in ASP of 4Q22 phones. Taken together, we expect 4Q22 mobile phone revenue to fall 28.9% year-on-year to 35.898 billion yuan, and gross profit margin to fall 0.9ppt to 8.0% month-on-month.
IoT business improved month-on-month, while Internet business remained stable. Considering that the fourth quarter is the peak sales season, we expect 4Q22 IoT business revenue to increase by 10.1% to 20.987 billion yuan, and IoT gross profit margin to increase by 0.6ppt to 14.1%. In terms of Internet business, we expect 4Q22's Internet business revenue to be 7.014 billion yuan, which is stable month-on-month; Internet gross profit margin dropped slightly to 70.6% month-on-month, mainly due to the low willingness of advertisers to launch.
Looking forward to 2023, we should be optimistic about the improvement of the profitability of the core main business and pay attention to the long-term space of the car-building business. We believe that although the company's business will be adversely affected by the downturn in market demand in 2022, looking forward to 2023, we expect that core main business profits are expected to return to growth with the recovery of 2H23 market demand, company inventory clearance, internal cost reduction and efficiency. We expect XIAOMI's smartphone shipments to be flat in 2023 (about 150 million units), but as 2Q23 inventory is cleared and consumer demand picks up, 2H23 smartphone business gross margin repair is expected to bring profit flexibility; at the same time, the recent bright performance of XIAOMI 13 is also expected to increase the company's share in the high-end market. In addition, in terms of car construction, the company plans to mass-produce smart cars in 1H24. At present, the car-building business is advancing in an orderly manner, and we are optimistic that the smart car business will form the company's second growth curve.
Profit forecast and valuation
Taking into account the continued investment in new car-building business, we reduced the adjusted net profit of 2.3% in 2023 to RMB 9.128 billion in 2023, and introduced a new forecast of adjusted net profit of RMB 11.498 billion in 2024. Considering the uncertainty of the car-building business, we do not consider the car-related costs and valuation contribution for the time being, and the current share price corresponds to the adjusted price-to-earnings ratio of 19.1 times earnings for 2023max 2024 core business (excluding carmaking). Maintain an outperform industry rating and a target price of HK $14.5, corresponding to a price-to-earnings ratio of 21.1 times earnings for the core business in 2023 and 2024, with 10.9% upside space.
Risk.
The global epidemic and macroeconomic impact on demand for smartphones and IoT products have led to lower-than-expected progress in car construction.