We attended Xiaomi's Annual Speech Event last Friday, during which CEO Lei Jun unveiled Xiaomi's latest foldable phone series MIX Fold4 and its first flip phone MIX Flip, Redmi K70 Ultra, wearables and large home appliances as well as SU7 Ultra prototype. We are encouraged by Xiaomi's premiumisation progress as the new products consistently exhibit competitive performance with a more stylish and deluxe design language. In particular, we are upbeat on Xiaomi's capability to replicate success of SU7 in future model pipeline, and thus raise 2024-26 EV volume and margin forecasts. We raise our TP from HK$25.18 to HK$25.72 and reiterate Xiaomi as top BUY.
Key Factors for Rating
MIX Fold and Flip foldable phones are new growth drivers: Global foldable phone market is a fast growing segment with high ASP (RMB6,000+) over the past four years. We believe Xiaomi MIX Fold4 and Flip will be a hit and gain market share as they address many pain points of existing foldable products, including price, thickness, weight, SoC capability, battery, app compatibility and UI logic between main-display, sub-display and cameras. In particular, comparing the spec with comparable foldable products, we find Xiaomi's Fold and Flip present significant advantages in camera and battery capacity over peers. Meanwhile, we also believe Xiaomi MIX Flip's full functional 3.5-inch 16:9 sub-display for the benefit of max app compatibility will be a killer feature. We estimate Xiaomi MIX Fold and Flip will deliver over one million life-time shipment volume combined, which will further accelerate Xiaomi's brand premiumisation and sustain group profitability in the long term.
SU7's success and EV strategy boost our confident in the upcoming new models. After a deep-dive research on Xiaomi's EV-making strategy and SU7's competitiveness, we are more confident about its capability to replicate the success of SU7 in future model pipelines. After the ongoing production line optimisation, we expect the double-shift capacity to drive a steady monthly sales ramp up of SU7 against c.11k deliveries in June. This may imply upside potential for both sales volume and gross margin this year against guidance. We forecast EV sales volume of 120k/240k/410k units for 2024-26 with gross margin of 10%/15%/18%.
Key Risks for Rating
Domestic smartphone competition; Global geopolitical conflict; Component price increase; Tax dispute in India; Slow EV capacity ramp up.