Xiaomi Group is a consumer electronics and intelligent manufacturing company with smartphones, smart hardware, and IoT platforms as the core. It has entered the automotive sector across borders to create a closed loop of “the whole ecosystem of people and cars” strategy. The company's smartphone shipments rank among the top three in the world, and the development of high-end & internationalization strategies is accelerating; the AIoT business relies on a rich product ecosystem to build the world's largest consumer-grade IoT platform, which is optimistic about the recovery of the downstream boom and the increase brought about by the company's domestic and overseas business expansion; the number of Internet business users and high-end stock continues to grow, and its ability to monetize is improving. The company officially released the first smart electric vehicle, the Xiaomi SU7, in 2024. The market popularity and order performance exceeded expectations, which is expected to open the ceiling for long-term growth. Covered for the first time, a “gain” rating was given.

Xiaomi Group: The high-end and global strategy is progressing steadily, and the entire ecosystem of people and cars has ushered in leapfrog development. The Xiaomi Group is a consumer electronics and intelligent manufacturing company with smartphones, smart hardware, and IoT platforms as the core. At the same time, it continues to expand its technological boundaries. It has now extended to the automotive sector, and the “entire ecosystem of people and cars” has officially ushered in a closed loop. The company implemented the “equal emphasis on scale and profit” business strategy. Total revenue in 2023 was -3.2% YoY to $279.7 billion, and adjusted net profit +126.3% YoY to 19.27 billion; Smartphone/IoT products/Internet services each accounted for 58.11%/29.56%/11.11% of total revenue for the whole year, and the gross margins of the three main businesses all reached record highs. The automotive business ushered in breakthrough progress in 2024. The launch performance of the first smart electric vehicle, the Xiaomi SU7, exceeded expectations, and long-term space can be expected.

Mobile phone+IoT+ Internet business: Optimistic about increasing smartphone share and high-end technology. Ecological advantages drive IoT and Internet growth. Mobile phones: Global smartphone shipments were +7.8% year-on-year in 24Q1. We expect the recovery trend to continue throughout the year. At the same time, the development of generative AI is expected to drive demand for high-end innovation and switching potential. The company's smartphone market share continued to increase, with 24Q1 shipments +33.8% to 408,000 units, with a year-on-year share of +2.7% to 14.1%; the Xiaomi + Redmi dual-brand strategy was parallel, and high-end sales at home and abroad continued to advance. Sales of the Xiaomi 14 series were booming in 2023. Throughout the year, Xiaomi's domestic ASP increased by more than 19% year on year, and the domestic 4k-6k price mobile phone market share reached 16.9%, +9.2 pct year on year. We are optimistic about the future growth potential brought about by the continuous increase in the company's mobile phone business share and product structure. IoT:

Xiaomi began investing in the IoT platform strategy in 2013. The AIoT product matrix and smart ecosystem coverage have continued to expand. The number of connected devices and users has steadily increased. Key categories such as smart appliances and tablets performed well in 2023, offsetting the impact of sluggish demand for smart TVs. Revenue remained flat year on year, while product structure optimization led to an increase in gross margin. We are optimistic about the future growth space brought about by the recovery of the downstream economy and the expansion of the company's domestic and overseas business. Internet: The number of users continues to grow. The number of monthly active users in the world and mainland China reached a record high in 2023. At the same time, high-end hardware terminals and the promotion of globalization have led to an improvement in the Internet user structure, and it is expected that the monetization capacity of Internet services will increase.

Automobile business: The Xiaomi SU7 won its first battle, and delivery of orders and production capacity exceeded expectations. It is expected to join the first tier of new forces in the medium to long term. On March 28, 2024, the Xiaomi SU7 was officially launched. The company's car building business took three years to reach the ground. The product had characteristics in terms of internal and external design, performance, battery life, intelligence, etc. The SU7 became a hit in the market. Orders, word of mouth and subsequent capacity delivery all achieved good performance. As of April 30, 88,000 units were ordered, 7058 units were delivered in the first month of April, and 10,000 units were delivered by May 15. We expect Xiaomi cars to achieve the delivery target of at least 100,000 units in 24 years, and will release multiple models one after another to complete the product matrix in the next two to three years. Looking at the medium to long term, we believe that Xiaomi can use its core advantages in various fields such as ecological barriers, brand foundation, supply chain, and marketing networks to join the first tier of sales of new forces, and strive to advance towards the goal of becoming one of the top five global car manufacturers in 15-20 years.

Investment advice: As the world's leading mobile phone brand, the company has actively promoted high-end strategy and international expansion since 2023. We are optimistic about the company's future mobile phone share expansion and product structure optimization. At the same time, the company has the world's largest AIoT smart hardware platform and a huge number of high-loyalty users. The AIoT and Internet business are expected to continue to grow steadily. We believe that the popularity and order performance of the first smart electric vehicle in 2024 have exceeded expectations. With the continuous improvement of the subsequent model matrix and the synergy of the ecological chain, the company is expected to join the first tier of new domestic forces, and Strive to advance towards the goal of becoming one of the top five global car manufacturers by 15-20 years. We forecast the company's total revenue for 24/25/26 to be 3307/3802/443.2 billion yuan, adjusted net profit of 165/202/262 billion yuan, and current market value corresponding to PE 26.7/21.7/16.8 times. The first coverage gave a “gain” rating, and is optimistic about the room for the company's medium- to long-term market value to rise.

Risk warning: macroeconomic risks falling short of expectations, risk of price increases for raw materials, risk of high-end development falling short of expectations, risk of overseas business falling short of expectations, risk of smart electric vehicles falling short of expectations