1Q24 performance review: optimistic about the increase in IoT business profit margins and the achievement of automobile shipment targets
1Q24 Xiaomi's performance was strong: revenue increased 27% year over year, and non-GAAP net profit increased 101% year over year. The main positive factors are that the profit margin of the company's IoT business increased by 6pp month-on-month, and the company gave positive guidance on the automobile shipment target during the performance conference call (reaching 120,000 units by the end of 2024). We raised Xiaomi's 2024/2025/2026 non-GAAP net profit forecast by 27/25/ 26% to RMB 17.3billion/17.7blon/19.2 billion yuan. We maintain a target price of HK$25.00 based on SOTP, which includes our valuation of HK$3.2 per share for Xiaomi's automotive business. Our target price corresponds to 32.6 times the 2024 forecast non-gaap net profit PE (assuming a forward exchange rate of 1 HKD = RMB 0.9). Maintain a “buy” rating.
IoT business: there is broad room for growth in overseas markets
1Q24 Xiaomi's IoT business revenue was RMB 20.37 billion (up 21% year on year, up 0.13% month on month); gross margin was 19.9% (up 4.1 percentage points year on year, up 6.0 percentage points month on month). Strong gross margin was mainly due to improved operating efficiency and improved product portfolio, and the share of sales in overseas markets and the home appliance business increased. Xiaomi management said during the conference call that the overseas IoT business will have broad room for growth in the next few years. We raised our IoT business sales forecast for 2024 to RMB 89.4 billion and gross margin to 17.5%.
Automobile business: Management raised the shipment target to 120,000 units. According to Xiaomi, the SU7 received 88,063 orders in the first month after launch, and the company had delivered 10,000 cars as of May 15. Management said during the call that it is confident that shipments will reach 120,000 units by the end of 2024. We forecast monthly car deliveries to reach 10,000 units in June, raise Xiaomi's 2024 car shipment forecast to 120,000 units, and raise automobile-related revenue to RMB 28.8 billion in 2024. We recommend investors keep an eye on Xiaomi's production capacity climb and consumer feedback on SU7 and NOA features over the next few months.
Smartphone business: gross margin declined, in line with expectations
In 1Q24, Xiaomi's smartphone business revenue increased 33% year over year, and shipments increased 33.5% year over year, mainly due to the low base effect. According to IDC data, the 1Q24 Xiaomi smartphone shipment volume was 40.76 million units (up 33.5% year on year, basically the same month on month), and the global market share was 13.7% (4Q23/1Q23:12.6%/11.4%). The smartphone business's gross margin was 14.8% (down 1.6 percentage points from month to month).
Looking ahead to 2024, we expect 163 million Xiaomi smartphones to be shipped, and investors are advised to keep an eye on the gross margin trend of the business over the next few quarters.
Risk warning: Smartphone demand falls short of expectations; macroeconomic downturn.