Core views
Xiaomi Group announced 2023Q4 results. Xiaomi Group's total Q4 revenue reached RMB 73.2 billion, slightly exceeding market expectations of RMB 72.5 billion, up 10.9% year on year and up 3.3% month on month; Q4 adjusted net profit reached RMB 4.9 billion, with market expectations of RMB 3.8 billion, up 236% year on year, including expenses for innovative businesses such as smart electric vehicles. By business, (1) mobile phone revenue was 44.2 billion yuan (yoy +21%), which was 2.3%; (2) IoT revenue was 20.3 billion yuan (yoy -5%), which was slightly lower than the agreed estimate; (3) Internet revenue of 7.9 billion yuan (yoy +10%), which exceeded the agreed forecast. Looking ahead to the full year of 24, although the gross margin of the mobile phone business may decline due to higher BOM costs, the promotion of high-end strategies has continued to improve the monetization capacity of the Internet business, and the profit margin of the company's core business is expected to remain stable in '24.
Brief review
Mobile phone business: Recovered and repaired, and gross margin remained high. The market share of Xiaomi's global mobile phone shipments in the fourth quarter was 12.8%, with shipments increasing by 23.9% to 40.5 million units, significantly exceeding the global mobile phone market growth rate (Canalys data showed a 7.5% growth rate of global mobile phone shipments in 23Q4); 23Q4's ASP fell 2.6% year on year to 1,092 yuan. The ASP decline was mainly due to an increase in overseas market (especially Latin America and Africa) shipment share. Structurally lowered the average price, but the domestic high-end strategy progressed smoothly. In '23, the domestic mobile phone ASP rose 19% year on year, making history A new high. Q4 The gross margin of the mobile phone business remained high at 16.4%, yoy+8.2pct, mainly driven by product upgrades, reduction in overseas inventory preparation, and reduction in core component costs. Looking ahead to 24 years: We expect that the growth rate of shipments will be superior to the market level on the basis of breakthroughs in emerging markets and a stable domestic market, increasing by about 10% year on year to more than 160 million units. On the ASP side, overseas upgrades, BOM costs, and high-end technology continue to advance, and ASP is expected to increase year over year in 24.
IoT business: Reduced TV and laptop revenue is dragging down the overall growth rate, but it is expected to accelerate growth this year as product restructuring is adjusted. 23Q4's IoT business revenue was 20.3 billion yuan (yoy -5%), of which smart computer and notebook revenue was 5.1 billion yuan, a year-on-year decrease of 21%. Other IoT products achieved revenue of 15.2 billion yuan, yoy +2%, mainly driven by smart appliances (empty ice washing) (Q4 15% year-on-year growth). The company's major appliances business maintained a high growth rate throughout '23. It shipped 4,400/200/1.3 million units of air conditioners, refrigerators, and washing machines respectively, up 49%/100%/24% year on year. The IoT business is expected to maintain a high single-digit growth rate this year as the category structure is adjusted and demand increases after overseas inventory is removed.
Internet business: Q4 reached a new high, and monetization is expected to accelerate in the future. 23Q4's Internet business revenue was 7.9 billion yuan, yoy +10%, mainly dependent on advertising growth. Among them, advertising/gaming/other value-added businesses increased 19%/2%/-14% year over year, respectively. The gross margin of the Internet business increased by 4.2 pct to 75.7% year on year, mainly due to the double increase in advertising share plus gross margin. We expect that in '24, as the high-end strategy progresses, the share of high-end aircraft shipments will increase, and the Internet business is expected to achieve a double increase in revenue+gross margin.
Profit forecast: With mobile phone shipments and ASP increasing at the same time as the Internet business accelerates monetization, we expect Xiaomi Group's revenue in 2024/2025 to be 3127/3499 billion yuan (yoy +15%/+12%), estimated net profit of 151/16.7 billion yuan (yoy -14%/+11%), and the estimated investment in car construction in 2024 is 11 billion yuan. The adjusted net profit of the core business excluding car building is 265 billion yuan (yoy +2%), corresponding to the current market value of 12.9x PE. On March 28th, Xiaomi will open the SU7 press conference to officially announce pricing, build a full ecosystem of people and cars, and open up new growth space for the company. We gave the company's core business 16 times PE in 24 years, corresponding to the target price of HK$18.4 in 2024, and gave it a “buy” rating.
Risk analysis
New product shipments fall short of expectations; downside risks in the mobile phone market; risk of falling market shipments, falling short of expectations; risk of inventory impairment; risk of policy management, limited development of domestic Internet business; intensification of overseas product competition; strong IoT cyclical attributes and weak demand side; decline in demand for 3C products due to macroeconomic downturn; impact of energy shortages in Europe; risk of exchange rate fluctuations; geopolitical risks causing damage to business in some countries; Internet business is affected by macroeconomics, and advertising business continues to be impacted; R&D costs due to new product businesses such as car building The long-term upward trend has brought pressure on the profit side.