Xiaomi Group (1810.HK): Strong release of core business profits

浦銀國際 ·  May 13

Xiaomi's core business has returned to an upward channel, and the new automotive business has been a huge success. Reiterating Xiaomi's “buy” rating, the target price was raised to HK$23.6, a potential increase of 22%.

Xiaomi's performance forecast for the first quarter: Strong profit release from core business: We expect Xiaomi's revenue to increase 25% year on year in the first quarter of this year, and the year-on-year growth rate will rise again from the fourth quarter of last year. Among them, the share of smartphone shipments in China and overseas increased, and the major electronics categories in the IoT business grew dramatically. At the same time, the growth in the user base has enabled the Internet business to maintain steady growth momentum. This all contributed to the company's strong revenue growth in the first quarter. We expect the gross margins of Xiaomi's three core business segments to be 14.5%, 20%, and 75%, respectively, to maintain a high position. As a result, we expect Xiaomi's adjusted net profit to be close to RMB 5.5 billion, an increase of nearly 70% over the previous year. Combined with the expenses of about 2.5 billion yuan for new businesses such as automobiles, Xiaomi's adjusted core business profit for the first quarter is expected to be close to RMB 8 billion, and profit release is strong.

Xiaomi's core business has returned to a growth trajectory, and the automobile business has made great strides forward: After the Xiaomi SU7 press conference and Investor Day event, we clearly felt that the management was motivated by its own business outlook, and that they had enforceable strategies for high-end mobile phone products and automotive business methodologies. As a result, we raised Xiaomi's 2024/2025 car delivery forecast to 100,000/208,000 units, and raised the 2024/2025 car revenue forecast to 23.7 billion yuan/50.8 billion yuan. At the same time, we have slightly adjusted our core business growth momentum and corresponding investment in technology research and development. Therefore, we expect that although Xiaomi's core profit release was strong in the first quarter of this year, the Xiaomi Group will increase investment in hardware technology to match future business development. This not only differentiates our own products, but also opens up space for long-term business growth. We look forward to the penetration of AI into the company's various business sales and costs, as well as the gradual replacement of our own chips with external chips.

Xiaomi is currently in a re-growth channel.

Valuation: Based on the stable release of profits from Xiaomi's core business, thereby encouraging Xiaomi to invest more calmly in building future technical barriers and opening up room for growth, we have raised Xiaomi's target valuation and target price. We value Xiaomi using the segmented plus total valuation method. We gave Xiaomi a target price-earnings ratio of 14.0x, 16.0x, and 14.0x for smartphone, IoT, and internet businesses in 2025, and a target market sales ratio of 2.0x for smart electric vehicles, and obtained a target price of HK$23.6, with a potential increase of 22%.

Investment risk: Demand recovery for consumer electronics products such as smartphones has fallen short of expectations. The cost of parts and upstream semiconductors in the mobile phone supply chain is rising too fast. Competition in the industry is intensifying, and players' profit margins are under pressure. Smart electric vehicle deliveries have fallen short of expectations.

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