We hosted Xiaomi at CMBI Technology Corporate Day on 27 Jun. Investors were mostly focused on market concerns regarding margin impact on rising memory prices, competitive landscape with AI iPhone launch and growth outlook of Xiaomi SU7 Series EV. We summarize key highlights as below, and maintain our positive view on Xiaomi's global smartphone share gains, AIoT sales strength, overseas internet revenue and EV shipment ramp-up. Reiterate BUY with SOTP-based TP of HK$25.39. Upcoming catalysts include SU7 shipment and market share gains.
Debate 1: GPM pressure on memory cost hikes. Mgmt. view: Limited impact with price stabilising into 2H24E. Media reported Samsung will raise memory prices in 3Q24 (news), but we see limited impact on Xiaomi as price hikes of 15-20% focus on server DRAM/enterprise NAND Flash. For mobile DRAM, the price hike is expected to slow to 3-8% QoQ in 3Q24E (vs 5-10% in 2Q). Xiaomi expects smartphone GPM to slightly trend down QoQ in 2Q24E after digestion of low-cost memory inventory in 1Q24, and GPM impact will smooth out in 2H24E given memory ASP stabilizing, high- end model launches (MIX Fold 4, Xiaomi 15), and better cost control.
Debate 2: Xiaomi SU7 EV orders to potentially slow down into 2H24E. Mgmt. view: 120k SU7 annual delivery target intact with production accelerating. Regarding concerns about SU7 order slowdown, Xiaomi reiterated guidance of 120k EV annual deliveries and 10k monthly deliveries in June, and Xiaomi EV factory started double-shift production in June, boosting capacity to 20k/m. Average waiting time for SU7 is around 30w now. In order to better manage customer orders given capacity constraints, the time allowed for free order cancelation was reduced from 7 days to 3 days since 5 Jun.
Debate 3: Impact from AI iPhone launch in 2H24E. Mgmt. view: global share gains to continue with strong AIoT ecosystem. Xiaomi is confident to achieve 165mn shipment target in 2024 (vs 146mn in 2023) as overseas expansion continues in LATAM, Africa, Middle East and Southeast Asia. As for AI phone, Xiaomi is well-positioned to accelerate share gains backed by its strong AIoT ecosystem, self-developed HyperOS and AI-powered voice assistant (Xiao AI). Xiaomi's 'MiLM' LLM will be integrated into smartphones, cars, and other devices after passing registration in May 2024.
Recent correction offers good buying opportunity. We believe market concerns are overdone, and the stock is attractive at 16.7x/15.2x FY24/25E P/E. Earnings upside likely comes from further share gains and SU7's better margin. Reiterate BUY with TP of HK$25.39, implying 25x FY24E P/E.