2023Q4 adjusted net profit exceeded expectations. 2023Q4 Xiaomi Group's revenue is 73.2 billion yuan, yoy +11%. By business, smartphone, IoT and consumer goods, and internet business revenue was 442/203/79 billion yuan, yoy +21%/-5%/+10%. The adjusted net profit of 2023Q4 was 4.9 billion yuan, yoy +236%, and the adjusted net profit of the Q4 core business (excluding 2.4 billion to 200 million SBC) was 7.5 billion yuan, yoy +182%, which was better than expected.
Revenue for the full year of 2023 was 271 billion yuan, yoy -3.2%. Adjusted net profit for the year was 19.3 billion yuan, yoy +126%.
The adjusted net profit of the core business (excluding vehicle construction of 6.7 billion + 800 million SBC) was 26.8 billion yuan, yoy +131%.
Mobile phones: Shipments continue to recover, and China's high-end technology continues to advance. Xiaomi 2023Q4 mobile phones shipped about 40.5 million units, yoy +24%, and annual shipments reached 146 million, yoy -3%. Q4 ASP yoy -2.6% to 1,092 yuan, mainly due to strong growth in shipments in low-ASP emerging markets such as Latin America and Africa. High-end mobile phones in mainland China are progressing smoothly. In 2023, smartphone ASP in mainland China increased by more than 19% year-on-year, and high-end Chinese smartphones (over 3,000 yuan) accounted for more than 20% of shipments throughout the year, of which Q4 accounted for about 28%. In terms of gross margin, Q4 mobile phones had a gross profit margin of 16.4%, yoy+8.2pct, mainly due to product upgrades, reduction in overseas inventory impairment provisions, and price reductions for core components. Looking ahead to 2024Q1, we expect mobile phone shipments and ASP to continue to increase.
AIoT, Internet: The structure continues to improve, and gross margin reaches a record high. Up to the Q4 AIoT platform, the number of connected devices reached 740 million, yoy +25.5%; the number of users with five or more connected devices to AIoT reached 14.5 million, yoy +25.3%. Q4 smart appliances business revenue YoY +14.6%. In terms of gross margin, Q4 gross margin was 13.9%, yoy-0.4pct, mainly due to the decline in gross margin of smart TVs, laptop computers, and overseas consumer goods.
2023Q4's overseas internet revenue reached 2.3 billion yuan, yoy +23.8%, and revenue for the full year of 2023 was 8.4 billion yuan, yoy +24%, increasing its share of internet revenue to 28%, yoy+4pct. Q4 Global MIUI MAU is 640 million, yoy +10.2%. Q4 The gross margin of the Internet business was 75.7%, yoy+4.2pct, mainly due to the increase in advertising share and gross margin. We expect gross margins to remain high in the future.
Xiaomi's orders are impressive, and they want value from the ecological chain. Xiaomi Auto was released on March 28, and the SU7, SU7 Pro, and SU7 Max are priced at 21.59, 24.59, and 299,900 yuan respectively. According to Xiaomi Auto's Weibo, the sale of Xiaomi cars broke 10,000 in 4 minutes, Dading broke 20,000 units in 7 minutes, 50,000 units in 27 minutes, and 88,898 units in 24 hours.
In terms of intelligent driving, Xiaomi Pilot has a full-stack self-developed intelligent driving algorithm. Among them, Xiaomi City NOA aims to start user testing in April, officially open 10 cities in May, launch nationwide in August, and reach the first tier in 2024.
In terms of smart cockpits, Xiaomi is expected to achieve cross-terminal interconnection across the entire ecosystem of people and vehicles through “Surge OS”. Furthermore, Xiaomi promotes multi-modal integration of AI models and full vehicle perception, and the new Xiaoai Big Model has deep intelligent voice control of the car.
The Xiaomi Group's latest strategy has been upgraded to a “full ecosystem of people and cars”. The ecological chain is closed to enhance the interactive experience, increase the profit margin of the automobile business and enhance business value through IoT products and value-added services in the future. The total cost of new businesses such as Xiaomi Auto in 2023 is 7.5 billion yuan, and we expect investment to continue to increase in 2024.
Reiterate the “buy” rating. We expect Xiaomi Group revenue in 2024-2026 to be 3200/3664/415.9 billion yuan, yoy +18%/+14%/+13%, non-GAAP net profit of 145/155/19.9 billion yuan, yoy -25%/+7%/28%. Based on Xiaomi's core business (excluding innovative business expenses such as car building) 13x 2024eP/E, automobile 2x 2024e P/S, combined with investment value, the target price of Xiaomi was maintained at HK$20, and the “buy” rating was reaffirmed.
Risk warning: Domestic smartphone competition intensifies, AIoT progress falls short of expectations, overseas market policy risks, Xiaomi's car construction falls short of expectations, and changes in the macroeconomic environment have exceeded expectations.