Incident: On August 21, Xiaomi Group released its 2024 mid-year report. In 2Q24, the company achieved revenue of 88.888 billion yuan, +32.0% year over year; adjusted net profit reached 6.175 billion yuan, +20.1% year over year. Among them, innovative businesses such as smart electric vehicles had an adjusted net loss of 1.8 billion yuan.

Performance exceeded expectations, and revenue reached a new level. The overall development momentum of 2Q24 Xiaomi was stable, and the group's revenue and profit once again achieved significant growth. 2Q24 revenue reached a record high of 88.9 billion yuan. By business level, 2Q24 mobile phone x AIoT business revenue was 82.5 billion yuan, YOY +22.5%, and gross margin reached 21.1%. Among them, smartphone business revenue was 46.5 billion yuan, YOY +27.1%, and gross profit margin was 12.1%. Global shipments of Xiaomi smartphones were 42.2 million units, YOY +28.1%, ranking among the top three in the world, with a global market share of 14.6%; revenue from IoT and consumer products was 26.8 billion yuan, YOY +20.3%, a record high, with a gross margin of 19.7%, YOY+2.2pct, of which revenue from the major electronics business increased 38.7% year on year; Internet service revenue was 8.3 billion yuan, YOY +11.0%, gross margin reached 78.3%, YOY+ At 4.2 pct, the number of monthly active users of Xiaomi worldwide and mainland China reached a record high.

Equal emphasis is placed on scale and profit, and both at home and abroad go hand in hand. In 2024, the Xiaomi Group implemented an equal emphasis on scale and profit to promote a high-end smartphone strategy. Among them, high-end smartphone shipments in mainland China accounted for 22.1% of total smartphone shipments in 2Q24, YoY+2.0pct. In addition, in 2Q24, Xiaomi's market share of smart phones in the price range of 5000-6000 yuan in China increased 2.3 pct to 8.9% year over year. In addition, the company is deeply involved in the global layout, with overseas market revenue of 38.1 billion yuan in 24Q2, accounting for 43%. Smartphone shipments rank in the top 3 in 58 countries and regions, and top 5 in 70 countries. The company actively explores emerging markets. For the first time in 2Q24, it ranked in the top two smartphone shipments in Latin America, and the overseas AIoT business is also growing steadily.

The gross margin of the automobile business is impressive, and the entire ecological path of people and car companies is clear. 2Q24's R&D investment reached 5.5 billion yuan, a year-on-year increase of 20.7%. In terms of innovative businesses such as smart electric vehicles, 2Q24 achieved revenue of 6.2 billion yuan, gross margin of 15.4%, and the Xiaomi SU7 series delivered 27,307 new vehicles. The company expects to achieve the goal of delivering 0.1 million new vehicles for the Xiaomi SU7 series ahead of schedule in November 2024, and the new target of delivering 0.12 million new vehicles for the Xiaomi SU7 series throughout 2024. As of June 30, 2024, Xiaomi has opened 87 car dealerships in 30 cities in mainland China. In terms of intelligent driving, Xiaomi launched the Urban Pilot Assist Function (City NOA) in 10 cities in mainland China on June 6, 2024, and plans to launch urban NOA nationwide in August 2024.

Investment advice: We are optimistic about the development strategy and continued AI layout of the company's “full ecosystem of people and cars”. Along with the recovery of the smartphone industry and demand for AI-enabled switching, and the development of innovative businesses such as smart electric vehicles, we expect the company to achieve revenue of RMB 333.098/379.967/427.969 billion yuan in 24-26, and net profit of RMB 17.796/20.234/24.706 billion yuan, corresponding to the current PE price, which is 25/22/18 times, respectively.” Recommended” ratings.

Risk warning: Increased market competition; domestic and foreign policy fluctuations; progress in new businesses such as car construction falls short of expectations.