4Q23 Results Exceed Expectations; Focus on Automotive Business Progress
In 4Q23, Xiaomi's revenue increased 11% year over year, and non-GAAP net profit increased 236% year over year. The latter was 21% higher than Huatai's expectations. Xiaomi smartphone/IoT/Internet business revenue was +21%/-5%/+10% year-on-year during the reporting period. Due to the low cost of raw materials in stock, the gross margin of Xiaomi 4Q23 remained at a high level. Xiaomi cars will be officially launched on March 28th. We recommend keeping an eye on the pricing, orders, and delivery of the Xiaomi SU7. We raised Xiaomi's 2024/2025 non-GAAP net profit forecast by 14%/15% to RMB 12.3/13 billion, and introduced a 2026 non-GAAP net profit forecast of RMB 13.9 billion. We maintain a target price of HK$20.0 based on SOTP. Buy.
Automotive business: focus on pricing strategies and delivery
Xiaomi announced that it will officially release the SU7 on March 28th. We expect the model to be priced between RMB 200,000 and 300,000, and we expect a total of 50,000 units to be delivered in 2024 or more. Management said Xiaomi will sell at more than 50 stores in 29 cities across the country: 1) self-operated delivery centers; 2) integrated stores expanded on the basis of Xiaomi Home; 3) stores in collaboration with automotive partners. We'll be keeping a close eye on the pricing of the Xiaomi SU7 and initial consumer feedback after launch.
Smartphone business: low cost inventory boosts gross profit margin
Thanks to the low base of 3Q22, Xiaomi's smartphone business revenue increased 21% year over year and shipments increased 22.8% year over year in 4Q23. According to IDC data, the number of Xiaomi 4Q23 smartphones shipped 40.7 million units (up 22.6% year on year, down 1.9% month on month), and its share of the global smartphone market was 12.6% (3Q23/4Q22:13.6%/11%). The gross margin of 4Q23's smartphone business was 16.4% (down 0.2 percentage points from month to month), mainly due to lower raw material costs. Looking ahead to 2024, we expect Xiaomi's smartphone shipments to reach 160 million units, but the smartphone business's gross margin may drop to 12% due to rising raw material costs.
Maintain target price of HKD 20 and “buy” rating
We raised Xiaomi's 2024/2025 non-GAAP net profit forecast by 14%/15% to RMB 12.3/13 billion, and introduced a 2026 non-GAAP net profit forecast of RMB 13.9 billion. We maintain a target price of HK$20.0 based on SOTP (assuming a forward HKD to RMB 0.9 exchange rate), which includes our valuation of HK$3 per share for the Xiaomi Auto business. Our price target corresponds to 37 times the 2024 forecast PE. Maintain a “buy” rating.
Risk warning: Smartphone demand falls short of expectations; macroeconomic downturn.