Incident: On July 19, Lei Jun held his 5th annual speech to share the story behind Xiaomi's car building, and released a series of new products such as Xiaomi folding screen phones, straight screen phones, bracelets, watches, air conditioners, and air purifiers in the second half. In addition, he also showcased the Xiaomi SU7 Ultra prototype and announced that it will officially challenge the Nürburgring North Ring Circuit in October this year. Regarding the Xiaomi new product launch, our comments are as follows:

Phone: The Xiaomi MIX Fold 4/MIX Flip folding screen and Redmi K70 Extreme Edition were officially released, and Xiaomi's next-generation Xiaomi smart phone smart factory was fully mass-produced. 1) Xiaomi MIX Fold 4: A new generation flagship folding screen phone. The whole machine weighs only 226g, has a single-side/folding thickness of 4.59/9.49mm; uses a 6.56-inch external screen+7.98-inch inner screen; equipped with a third-generation Qualcomm Snapdragon 8 processor. The price of the product starts at 8999 yuan. 2) Xiaomi MIX Filp, the first small-sized folding screen phone: Xiaomi's first small folding screen phone, equipped with a 4.01 inch external screen+6.86 inch inner screen, equipped with a narrow-slit external screen handset+independent microphone to answer calls without opening or closing; in addition, it is equipped with a third-generation Snapdragon 8 processor and a Leica Optical Summilux large aperture lens. Product pricing starts at 5999 yuan. 3) Redmi K70 Extreme Edition: Redmi models are first equipped with Xiaomi Longjing Glass, which increases hardness by 35%; equipped with Tianji 9300+ flagship processor, CPU/GPU/AI performance is improved by 37%/44%/100%.

The price of the product starts at 2599 yuan. 4) Smart phone factory: The next-generation Xiaomi smart phone factory is fully mass-produced, with an annual production capacity of up to 10 million units. The Xiaomi MIX Fold 4/MIX Flip will all be produced at this factory. In the short term, the company's 24Q1/24Q2 mobile phone shipments continued to grow at a high year-on-year rate. Overall shipments in the first half of the year reached 0.083 billion units. Considering the peak consumer electronics season in the second half of the year, we expect the company's annual mobile phone shipments to achieve a double-digit percentage increase, focusing on the potential impact of changing raw material costs in 24 years on gross margin; in the medium to long term, we continue to be optimistic about the growth opportunities brought by the continuous increase in the emerging market share of Xiaomi phones and the steady advancement of high-end phones. Furthermore, the company's Internet business will also benefit from the increase in mobile phone users, high-end penetration, and all-round empowerment brought by the “Full Ecosystem of People and Cars” system, and achieve an increase in revenue and gross margin in the medium to long term.

Automobile: Production capacity and delivery of the Xiaomi SU7 are progressing smoothly, and the SU7 Ultra prototype challenges the world's fastest four-door car. 1) Production capacity delivery: Xiaomi's production capacity increase and delivery acceleration are progressing smoothly. Up to now, more than 0.03 million units have been delivered. It is expected that delivery will continue to exceed 10,000 vehicles in July, and the annual delivery target of 0.1 million vehicles will be completed ahead of schedule in November. 2) Sales and service network: In July, Xiaomi auto stores will be added in Jinan, Guiyang, Changchun, and Changzhou. It is expected to cover 59 cities across the country by December '24, including 53 delivery centers, 220 sales stores, and 135 service stores. 3) Xiaomi SU7 Ultra Prototype: The Xiaomi SU7 Ultra Prototype, a peak performance pure electric vehicle based on the Xiaomi SU7, was released. It was the first V8s motor developed by Xiaomi. It uses a V8s+V8s+V6s three-motor design. It has a 1,548PS four-door car with super horsepower, a zero hundred acceleration of only 1.97s, and a maximum speed of over 350 km/h. The Xiaomi SU7 Ultra prototype will officially challenge the New Zealand North Africa mass-produced race speed list in October '24, and the 25-year mass-produced car will officially compete in the New North; the goal of Xiaomi is to become the fastest four-door tram in New Zealand North within ten years.) AI application: Xiaomi's self-developed loud model provides an innovative “external wake-up defense” function. It is expected to be implemented on the Xiaomi SU7 via OTA in August 2024. We judge that Xiaomi will continue to launch multiple models in the next few years to achieve full coverage of the product matrix of all categories, multiple power models, and multiple price bands; in the medium to long term, we are optimistic that the company will continue to break through in car sales, word of mouth, and industry position, and strive to advance towards the goal of becoming one of the top five global car manufacturers by 15-20 years.

IoT: Launched various new IoT products such as headsets, bracelets, watches, air purifiers, air conditioners, etc., and AI fully empowers the entire ecosystem of people and cars. Xiaomi released new wearable products such as Xiaomi Buds 5, Xiaomi Mi Band 9, and Xiaomi Watch S4Sport, as well as multiple performance upgrades for smart home products such as air purifiers and air conditioners. 1) XiaomiBuds 5: Lightweight at 4.2g per ear, 6.5 hours of battery life, 39 hours of battery life, IP54 dustproof and waterproof, priced at 699 yuan. 2) Xiaomi Mi Band 9: High-precision heart rate/sleep monitoring. First introduced a surface-grade linear motor, has a battery life of 21 days, supports NFC car keys, and starts at 249 yuan. 3) Xiaomi WatchS4 Sport: Xiaomi's first professional sports smartwatch, with professional sports designs such as titanium alloy body, sapphire glass, and various professional outdoor watch straps; in addition, it cooperated with Suntuo, a world-renowned outdoor sports brand to create professional sports algorithms and performance, with a 15-day battery life, starting at 1999 yuan. 4) Mijia Full Effect Air Purifier Ultra Enhanced Edition: Equipped with 5 sets of professional filters and 10 layers of composite purification technology, plus a deodorizing oxygen-dissolving layer+carbon filter layer. The price is 5,799 yuan. 5) Mijia Air Conditioner Fresh Air Pro: Added an ice crystal white color scheme, which supports superior level energy efficiency and independent air control in four zones. The initial launch starts at 6999 yuan. In addition, Xiaomi's AI fully empowers the entire ecosystem of cars. The big model, Xiaoai, will soon cover all core categories, including mobile phone, tablet, and TV upgrades at the end of July, screen-less speakers at the end of August, and screen-enabled speakers at the end of October. 24Q1's IoT business revenue continued to grow, and gross margin reached a record high. We expect continued progress in tablets and major appliances throughout 2024 to help the company achieve positive year-on-year revenue growth. In the medium to long term, empowering the entire ecosystem of people and cars, increasing self-development of core products, and overseas expansion are expected to help the IoT business grow in the long term.

Maintain an “overweight” investment rating. As a consumer electronics and intelligent manufacturing company integrating smartphones, smart hardware, IoT platforms, and automobile businesses, the Xiaomi Group is steadily advancing its high-end and global strategy, and the entire ecosystem of people and cars has ushered in leapfrog development. We are optimistic about the company's future mobile phone share expansion and product structure optimization. At the same time, the company has the world's largest AIoT smart hardware platform and a huge number of high-loyalty users. The AIoT and Internet business are expected to continue to grow steadily. The popularity and order performance of the first smart electric vehicle in 2024 exceeded expectations. With the continuous improvement of the subsequent model matrix and the synergy of the ecological chain, we believe the company is expected to join the first tier of new domestic forces and strive to advance towards the goal of becoming one of the top five global car manufacturers by 15-20 years. We forecast the company's total revenue for 24/25/26 to be 348.2/408.5/472.8 billion yuan, adjusted net profit of 17.9/22.4/27.9 billion yuan, and the current market value corresponding to PE is 21.1/16.8/13.5 times. Maintain the “gain” rating and be optimistic about the room for the company's medium- to long-term market value to rise.

Risk warning: The macroeconomy falls short of expectations, the risk of raw material price increases, the risk of high-end development falling short of expectations, the risk of overseas business falling short of expectations, and the development of smart electric vehicles falling short of expectations.