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We raised Xiaomi's price target to HK$25 to reflect the smooth launch of its first electric vehicle, the SU7. We believe that by the end of 2024, the SU7 or surpass the Tesla Model 3 will become one of the best-selling pure electric models in the RMB 200,000 to 300,000 yuan price range. We recommend investors keep an eye on the progress of production capacity climbing over the next few months. We lowered Xiaomi's 2024/2025/2026 non-GAAP net profit forecast by 6%/3%/2% to RMB 11.6 billion/ 12.6 billion. Our new target price of HK$25 includes our valuation of HK$16.6 per share for Xiaomi's smartphone/IoT/Internet business (corresponding to 15.8 times EPS for FY2024), a valuation of HK$5.3 for Xiaomi's automotive business (corresponding to 2.5 times sales for 2025), and a valuation of HK$3.1 for Xiaomi's investment business.
Follow SU7's production capacity climbing progress and feedback
According to Xiaomi, the SU7 received pre-paid orders for 89,000 vehicles on the day of launch, which is close to its current annual production capacity of 100,000 vehicles. We recommend investors pay attention to (1) the conversion rate from prepaid orders to non-refundable orders, (2) the rate at which Xiaomi's production capacity is climbing, and (3) consumer feedback on SU7 in the coming months.
We raised our 2024 vehicle shipment forecast to 100,000 units, and raised our automotive-related business revenue forecast to RMB 24 billion.
The SU7 may become the best-selling pure electric model in the domestic RMB 200,000 to 300,000 yuan price range. According to Marklines, the total sales volume of pure electric models with a price of RMB 200,000 to RMB 300,000 in 2023 was 538,000 units. Tesla Model 3 and BYD Han EV ranked first and second respectively, with annual shipments of 142,000 and 82,000 units, respectively, corresponding to monthly shipments of 11,800 and 0.69 million units. Xiaomi began delivery in April. If it can successfully deliver 100,000 electric vehicles in 2024, this year's monthly shipments may be close to the level of Model 3, and will catch up with single-month shipments at the end of the year.
Increase target price to HK$25; buy
We lowered Xiaomi's 2024/2025/2026 non-GAAP net profit forecast by 6%/3%/2% to RMB 11.6 billion/ 12.6 billion. We raised our SOTP-based price target to HK$25.0, which includes our valuation of HK$5.3 per share for Xiaomi's automotive business. Our target price corresponds to 49 times the 2024 PE forecast (assuming a forward HKD/RMB exchange rate of 0.9). Maintain a “buy” rating.
Risk warning: Smartphone demand falls short of expectations; macroeconomic downturn.