Profit forecast and valuation: We adjusted the revenue for Xiaomi FY2024/FY2025 to be 337 billion yuan/384.5 billion yuan (RMB, same below) (corresponding previous value was 299.5/328 billion yuan), up 24.4%/14.1% year over year. Adjusted net profit was 19.6/20.2 billion yuan, up 1.8%/3.1% year over year. The 2024 target price was set at HK$20.0 to maintain the “increase in holdings rating”.
We expect Xiaomi FY24Q2 to achieve revenue of 86.5 billion yuan, +28.4% year-on-year. The mobile phone business grew steadily, the IOT and Internet service businesses continued to grow, and the automobile business began to gain momentum.
The gross profit margin is expected to be 19.0%, a slight decrease from month to month. The automobile business, which has a relatively low gross margin, is growing rapidly, mainly due to changes in the revenue structure. R&D expenses account for 6.7% of revenue, sales and marketing expenses ratio 6.6%, and general and administrative expenses ratio 1.9%. Adjusted net profit was $4.35 billion, up 5.0% year over year.
We expect Xiaomi's FY24Q2 delivery volume to exceed 0.025 million units, bringing in over 6 billion yuan in revenue. Xiaomi cars delivered more than 0.01 million units in June, and the company said that deliveries will continue to exceed 0.01 million units in July. We expect the delivery volume of Xiaomi cars to reach 0.111 million units and 0.195 million units in 2024/2025, with revenue of 27.8/58.9 billion yuan. At the same time, the automobile business is expected to lose 11 billion yuan in 2024 due to the fact that the automobile business requires upfront investment in R&D, store opening, etc.
The 24Q2 mobile phone business shipped smoothly, and IOT is expected to benefit from the air conditioning business. We expect smartphone FY24Q2 revenue to be around 45.7 billion yuan, +25% year over year. The share of Xiaomi's low-end smart phones continues to rise. The share of mid-range smart phones has stabilized, while the share of high-end smart phones has declined slightly, and the overall market share of the mobile phone market in China has stabilized at 15%. We believe that the competitiveness of Xiaomi's mobile phone business comes from a level of technological innovation at the same price. At the same time, Xiaomi has successfully expanded overseas markets such as Europe, Latin America, Africa, and Southeast Asia, and has been widely recognized by users for its excellent cost performance ratio, and user loyalty and satisfaction are high; we expect the IOT business FY24Q2 revenue to be about 24.9 billion yuan, +12% over the same period last year. The second quarter was the peak period for air conditioner shipments. During the 618 period, Xiaomi ranked third in air conditioner shipments. We believe that major appliances represented by air conditioners are expected to drive IOT revenue growth; we expect Internet service FY24Q2's revenue to be about 8 billion yuan, +7.5% over the same period last year. The Internet service sector has a rich user base and appeal. Continuously improving platform efficiency and independent content distribution capabilities will broaden the advertising business, while the game business is showing strong performance and jointly driving business growth.
Risk warning: mobile phone sales fall short of expectations, IOT business is slowing down, automobile business falls short of expectations, macroeconomic downturn