Source: CICC
CICC predicts a 70.7% year-on-year increase in adjusted net profit for Xiaomi 1Q24.
We expect the adjusted net profit of the Xiaomi Group in 1Q24 to increase 70.7% year over year to 5.521 billion yuan.
Key points of interest
Smartphone shipments grew strongly in 1Q24, and gross margin was expected to decline month-on-month due to component price increases. According to Canalys, 1Q24 Xiaomi's global smartphone shipments increased 33% year over year to 40.7 million units, and its market share increased 3ppt to 14% year over year, ranking third in the world. We judge that the strong increase in the company's shipment volume is, on the one hand, a low base formed during the 1Q23 inventory removal cycle, and on the other hand, due to the company's outstanding performance in emerging markets such as Africa, Latin America, and the Middle East. In terms of ASP, considering the first quarter as a low season for new phone releases, we expect mobile ASP to remain stable year-on-year. Based on shipment volume and ASP, we expect 1Q24's mobile phone business revenue to increase by 30.3% year-on-year to 45.60 billion yuan. In terms of gross margin, considering the rise in the prices of components such as storage, we expect the gross margin of the mobile phone business to increase by 3.3 ppt year-on-year and decrease by 1.9 ppt to 14.5% month-on-month in 1Q24.
The impressive performance of major appliances has led to the growth of the IoT business, and the Internet business is rising steadily. We expect 1Q24's IoT business revenue to increase 21.0% year over year to 20.369 billion yuan, and gross margin to increase by 3.3ppt to 19.0% year on year. This is mainly due to an increase in the share of high-margin household appliances business, while overseas IoT demand has recovered. In terms of the Internet business, considering the growth trend of mobile phone shipments, we expect 1Q24 Internet business revenue to increase 10.0% year on year to 7.731 billion yuan, and gross margin to increase 2.7 ppt to 75.0% year on year, mainly due to an increase in the share of high-end mobile phone shipments and a recovery in advertisers' demand.
With a minimum delivery target of 100,000 cars in 2024, we are optimistic about the long-term growth space of the automobile business. According to the company's announcement, as of April 30, 2024, the company has received 88,063 confirmed orders for the Xiaomi SU7; the company said it is promoting a comprehensive increase in production in the industrial chain, with a target of delivering more than 10,000 vehicles within three months of release, with a minimum delivery target of 100,000 vehicles in 2024; with the support of the supply chain, the company stated that the gross margin of the Xiaomi car business is expected to be 5-10%. Looking forward to the future, we expect that Xiaomi will continue to improve its delivery capacity and gross profit margin, and we are optimistic about the car's growth space under the “whole ecosystem of people and cars” strategy.
Profit forecasting and valuation
We introduced a forecast for the company's automobile business, and increased adjusted net profit of 9.0%/33.7% in 2024/2025 to 16.512 billion yuan/17.498 billion yuan, taking into account that Xiaomi's delivery target and gross margin exceeded market expectations. The current stock price corresponds to the 2024/2025 adjusted net profit price-earnings ratio of 24.1 times/21.8 times. Maintaining an outperforming industry rating, the target price was raised by 27.8% to HK$23.0 (SOTP valuation) based on confidence in the long-term growth of the company's automobile business, corresponding to the 2024/2025 adjusted net profit price-earnings ratio of 34.8/32.8 times, with 28.2% upside compared to the current stock price.
risks
The global macroeconomic economy affects demand for smart phones and IoT products, and smart car sales are lower than expected.