Key points of investment
Global mobile phone industry: Demand has gradually bottomed out, and AI end-side applications are expected to drive industry recovery. The last round of global mobile phone shipments peaked in 2016. It has been 8 years since then, and demand for switching is constantly increasing.
According to Canalys data, the global smartphone market grew 10% and 12% year over year, respectively, in the first two quarters of 2024, indicating that the industry has recovered. The application of the big AI model brings a new user experience, which is expected to drive a recovery in global demand for mobile phones. Canayls predicts that global AI phone shipments will account for 54% of total smartphone shipments in 2028.
The company's mobile phone brand strength is increasing, and shipments are expected to exceed the industry's growth rate. By continuing to provide cost-effective products, the Xiaomi brand is recognized by more and more consumers around the world.
According to Canalys data, the company shipped 40.8 million mobile phones globally in Q1 in 2024, up 33.8% year on year, and the global market share reached 14.1%, far exceeding the global average. The company is developing a big AI model and is expected to continue to increase its share in the high-end market, thus driving the company's mobile phone shipments and ASP to increase at the same time.
XiaomiSU7 was successfully delivered, and the human-vehicle ecosystem achieved a closed loop
According to the company's chairman Lei Jun's speech on the evening of July 19, the Xiaomi SU7 has delivered more than 0.03 million vehicles since its launch, and the annual delivery target of 0.1 million Xiaomi SU7 vehicles is expected to be completed ahead of schedule in November.
Market research shows that 80% of SU7 subscribers consider themselves “rice noodles”. The Xiaomi car ecosystem has closed its loop and is entering a positive feedback stage where each other promotes mutual integration. In the future, it will play a positive role in promoting the company's overall product sales.
Investment advice
We estimate that the company's total revenue for 2024-2026 will be RMB 3416.5 (+26.1%), 3852.4 (+12.8%), and 4375.5 (+13.6%), respectively, and the corresponding net profit to mother will be RMB 161.96 (-7.3%), 180.52 (+11.5%), and 207.28 (+14.8%) billion yuan, respectively.
We believe that with the assistance of existing consumer electronics, AIOT, and Internet services, the company's automotive business is expected to develop healthily and rapidly, and there is a high probability of success in eventually entering the industry. In this process, the company's large early investment in the automobile business is expected to quickly turn into profit, and the company's net profit is highly elastic. We are optimistic about the company's medium- to long-term growth. We believe that the reasonable valuation of the company is 30 times 2024PE, corresponding to the target price of HK$21.1 per share. The stock price has room to rise by 27.7%, giving it a “buy” rating.