Incident: The company released 1Q24 results, achieving revenue of 75.5 billion yuan, an increase of 27% over the previous year. Among them, the revenue of the company's three core businesses all achieved strong growth. Smartphone/IoT/Internet business revenue increased 32.9%/21.0%/14.5% year-on-year respectively, accounting for 62%/27%/11% of revenue respectively. 1Q24 achieved a gross profit margin of 22.3% and non-IFRS net profit of 6.5 billion yuan, an increase of 100.8% over the previous year, corresponding to a record high of 8.6% in non-IFRS net profit. Among them, innovative business expenses such as smart electric vehicles were 2.3 billion yuan.
Overseas smartphone shipments increased significantly, with gross margin of 14.8% in 1Q24 and still at an all-time high level: 1Q24 smartphone business revenue of 46.5 billion yuan, with 4 consecutive quarters of increase of 33.7% (vs. global smartphone market shipments yoy +9.8%), mainly due to increased shipments from emerging markets such as the Middle East, Latin America, Africa and Southeast Asia; ASP fell 0.6% to 1,145 yuan, mainly due to the increase in ASP shipments in emerging markets with lower ASP. Due to increased BOM costs and increased inventory impairment provisions, the gross margin of the mobile phone business fell 1.6 pcts to 14.8% month-on-month in 1Q24, but this level is still at a historically high level of its own gross margin. Looking ahead, we believe that Q2 is facing the 618 promotion season, and smartphone gross margin may decline month-on-month, but considering the optimization of the product structure and the improvement of Xiaomi's ability to control the supply chain, the gross margin of mobile phones is expected to reach 12-13% for the whole of the 24th.
IoT gross margin reached a record high, and the Internet remains healthy: 1) IoT business: 1Q24 revenue increased 21.0% year on year to 20.4 billion yuan, and gross margin increased sharply by 4.1 pct to 19.9% year over year, mainly benefiting from the combined increase in revenue and gross margin of high-margin products such as tablets; looking forward to the future, if self-developed categories such as large appliances and tablets continue to grow strongly, the gross margin of the IoT business is expected to reach more than 18% in 2024. 2) Internet business: 1Q24 revenue increased 14.5% year on year to 8 billion yuan, and gross margin increased 1.9 pct year on year to 74.2% year over year, mainly driven by a 25% increase in revenue from advertising businesses with high gross margin. We expect that along with the increase in the global user base and the continuous increase in the proportion of high-end machine shipments, both pre-installed and effective advertising are expected to drive a month-on-month increase in Internet business revenue, and the expansion of overseas partners and increased monetization capacity will become the core of Internet business growth.
The number of SU7 locks has already exceeded 88,000 units, with 120,000 units delivered in the year: the Xiaomi SU7 was launched on March 28, the SU7 standard model and SU7 Max were officially delivered at 4M24, the SU7 Pro was officially delivered at 5M24, and the 6M24 Xiaomi factory has started double shift production and is making every effort to expand production capacity. The company said that the 6M24 will deliver more than 10,000 units in a single month, and the number of new SU7 vehicles will sprint to 120,000 units throughout the year.
Profit forecast, valuation and rating: We believe that the operating conditions of the three core businesses of the Xiaomi Group have been continuously optimized, the SU7 was successful in its first launch, and the company's old and new business is expected to achieve two-wheel drive. We will raise 2024/25/26 non-IFRS net profit to 166/183/21 billion yuan (an increase of 16%/17%/24%). According to the SOTP valuation method, the mobile phone/IoT/Internet business will be given 10/12/15x PE, respectively, and the car will be given 2xPS At the same time, considering the investment value, the company was given a comprehensive target price of HK$22.8 to maintain the company's “gain” rating.
Risk warning: mobile phone shipments are under pressure; overseas market expansion falls short of expectations; Internet monetization falls short of expectations