The “triathlon” business model is stable and has become a global technology company. Xiaomi's main business model is hardware customer acquisition, new retail gripper market, and internet monetization. Low-profit smartphones, smart cars, IoT, and consumer goods are used as a means to attract users. Popular products with extremely simple and cost-effective products bring more traffic to retail channels, and then increase monetization through internet advertisements and app stores. The combination of the three has established a closed loop of Xiaomi's profit. Thanks to a successful business model, Xiaomi ranked in the top 3 in the global smartphone market share in 2023, accounting for 44.9% of overseas revenue, and has grown into a global international company.

The three major terminals of people and cars have entered a growth cycle, and ecological collaboration has strengthened monetization efficiency. Shipments of the company's three major hardware terminals grew rapidly: 1) Smartphones: In the context of the new switching cycle, thanks to the advancement of high-end and globalization, mobile phone shipments returned to a stage of rapid growth. The company's global smartphone shipments also increased by 33.44% in 2024Q1; smartphone market shares in the Middle East, Africa, and Southeast Asia increased 7.1%, 4.5% and 4.4% year-on-year respectively; 2) Smart cars: The market feedback for the company's first model, the Su7, was positive, and the number of locked orders reached 0.0881 in the first month of April Million cars. With the increase in delivery capacity, Xiaomi has delivered more than 10,000 vehicles in a single month for 2 consecutive months, and is expected to achieve the annual delivery target of 0.1 million vehicles ahead of schedule in November; 3) IoT and consumer goods: Following smart TVs, the smart home appliance category is gradually gaining market recognition. In 2023, the company's shipments of large smart appliances such as air conditioners, refrigerators, and washing machines increased by 49%, 105%, and 24%, respectively. As of 2024Q1, devices connected to the Xiaomi AIoT platform (excluding smartphones and laptops) are about 0.786 The billion stand. Based on a large scale of hardware terminals, the company promotes rapid OS upgrades and AI capabilities to promote user experience upgrades, thereby enhancing the commercial monetization efficiency of Internet services.

The triple support of technology, channel, and brand is a key ecosystem for successful intelligent manufacturing and sales of card hardware. We believe that the company can continue to achieve success in a series of hardware such as smartphones, IoT, and smart cars. The key is: 1) technical strength: combining the ecological chain of self-development and investment, so that the company has strong control over the parts supply system and AI model capabilities, and can continue to produce high-quality products; 2) marketing power: founder Lei Jun already has his own traffic as the company's IP asset, compounded by the rice noodle culture driven by the “touching people's hearts and price kindness” product concept. For Xiaomi, it naturally has user trust, which can reduce marketing difficulties and costs; 3) Strong channels: Xiaomi An efficient new omnichannel retail system has been formed to fully reach consumers using the “online+offline+operator cooperation” sales method. By 2024Q1, the company's smartphone market share in mainland China had increased to 9%. Thanks to the triple synergy, we believe that the company can continue to replicate the success of the aforementioned products in the hardware ecosystem and successfully become a key ecosystem for intelligent manufacturing and sales of card holder hardware.

Investment advice: Thanks to the new smartphone replacement cycle and positive market feedback from Su7 vehicles, we expect the company to achieve revenue of 329.657 billion, 375.311 billion, and 424.24 billion in 2024-2026, and net profit to mother of 14.085 billion, 17.121 billion, and 19.024 billion. Since smart cars are still in the early stages of investment and commercialization, and there is a difference from the original business stage, we used the segmented valuation method. Based on comprehensive considerations, we gave the company a 2024 valuation of HK$512.518 billion, corresponding to a 6-month target price of HK$20.57 (1 yuan = HK$1.09), which was covered for the first time and gave a “buy-A” rating.

Risk warning: Increased competition in the industry, smart car deliveries falling short of expectations, rising costs such as raw materials, etc., risk of large losses due to investment, calculation and assumptions falling short of expectations