Core views
Xiaomi's 24Q1 revenue is 7.55 billion yuan (YoY +27%), of which mobile phone, IoT, and internet revenue are expected to be 465/204/80 billion yuan (YoY +33%/+21%/+14.5%); overall gross margin continued to rise to 22.3% (YoY+2.8 pct) due to the record high IoT gross margin and strong high-margin Internet business; net profit after Q1 adjustment greatly exceeded expectations of 6.49 billion yuan (beat consensus 34%), YoY +100.8%, car construction The cost of the remaining innovative business was 2.3 billion yuan, and the net profit after adjustment to the corresponding core business was 8.8 billion yuan, YoY +103%. The SU7 is currently in a production and marketing state. The target is to deliver 100,000 units in 24 years, challenging 120,000 units.
Brief review
Mobile phone business: Strong growth in shipments and steady gross margin. In 24Q1, the shipment volume of Xiaomi phones was 40.6 million, yoy +33%, a year-on-year increase of 10.2 million units in a single quarter, far higher than the 9.8% year-on-year growth rate of global shipments, and the market share increased to 13.8% (yoy+2.8pct), ranking third in the world. On the one hand, the strong increase in shipment volume is due to the company's outstanding performance in emerging markets such as Latin America and Africa, and on the other hand, it has benefited from a low base during the inventory removal cycle in the same period last year. On the ASP side, it has benefited from the continued advancement of high-end strategies, and both domestic and overseas ASP have increased. The Q1 comprehensive ASP was 1,145 yuan per unit (qoq +4.9% /yoy -0.6%). The slight year-on-year decline in comprehensive ASP was mainly due to structural adjustments brought about by strong overseas markets with lower ASP. Gross margin declined month-on-month due to BOM cost increases, but remained at a high level of 14.8% year over year (yoy+3.6pct/qoq-1.6pct).
AIoT & Internet business: IOT gross margin reached a record high, with the Internet business revenue exceeding 8 billion dollars in a single quarter. 24Q1 AIoT revenue was 20.4 billion yuan (yoy +21.03%), mainly driven by core categories such as tablets, wearables, and large appliances and the end of the overseas inventory cycle. At the same time, the company actively adjusted the product structure and continuously increased the proportion of self-developed products, and the gross margin increased to a record high of 19.9% (yoy+4.14pct/qoq+5.93pct). Benefiting from the increase in the number of overseas users and the increase in advertising revenue, the 24Q1 Internet business revenue was 8 billion yuan (yoy +14.5%), and gross margin remained high at 74.2%.
The first battle in the automobile business was successful. The delivery target this year was “100,000 to guarantee 120,000 units”, and the gross margin is expected to exceed expectations. Su7 has shown strong performance in terms of word of mouth, efficiency, and delivery. Currently, the latest number of locked orders is 88,000 units (up to 4.30). Based on the strong sales performance, we believe that Xiaomi is currently in a state of production and sales, and orders are not the main limiting factor. In terms of delivery, the company aims to deliver 10,000 units per month starting in June, guarantee 100,000 units throughout the year, and sprint to the delivery volume of 120,000 units. As production capacity climbs and subsequent new car product matrices are released, the narrowing of losses in the automobile business is expected to exceed expectations. Looking at it now, Xiaomi's car construction is progressing relatively smoothly from 0-1. We are optimistic about the car building growth space under the company's “a whole ecosystem of people and cars” strategy.
Profit forecast and valuation: We expect Xiaomi Group's 2024/2025 revenue of 3379/388.4 billion yuan (yoy +25%/+15%), adjusted net profit of 168/17.8 billion yuan, estimated investment in car construction and other new businesses in 2024 to be 11.3 billion yuan, and adjusted core business net profit of 28.1 billion yuan (yoy +9%). We gave the company a “buy” rating for the core business of 15x PE for 24 years, 2x PS for cars for 24 years, and a target price of HK$22.9.
Risk analysis: New product shipments fall short of expectations; downside risks in the mobile phone market; risk of falling market shipments, falling short of expectations; risk of inventory impairment; risk of policy management, limited development of domestic Internet business; intensification of overseas product competition, etc.; strong IoT cyclical nature, weak demand side; decline in demand for 3C products due to macroeconomic downturn; impact of energy shortages in Europe; risk of exchange rate fluctuations; geopolitical risks causing business damage in some countries; Internet business is affected by macroeconomics, and advertising business continues to be impacted; caused by new product businesses such as car construction R&D expenses have been rising for a long time, putting pressure on the profit side.