Incident: Xiaomi Group announced its results for the 2nd quarter of 2024. 2024Q2 achieved revenue of 88.9 billion yuan, a record high, +32.0% year over year, and adjusted net profit of 6.2 billion yuan, or +20.1% year over year. In the first half of the year, the company achieved revenue of RMB 164.4 billion, +30% year-on-year, and adjusted net profit of RMB 12.7 billion, or +51% year-on-year. The company's performance exceeded market expectations.

The SU7 has delivered more than 27,000 units, and the gross margin exceeded expectations, showing excellent supply chain management capabilities. 24Q2 automobile business revenue was 6.2 billion yuan, gross margin reached 15.4%, and net loss was 1.8 billion yuan. The performance exceeded the market's unanimous expectations. We believe that the company's outstanding gross margin performance comes from the accumulation of deep supply chain management capabilities for TOC terminal products and the rapid and full use of production lines.

The SU7 series delivered 27,307 vehicles this quarter, and the company raised its annual delivery target to 0.12 million vehicles. We are optimistic that subsequent companies plan to fully release production capacity, continue to climb in scale, further demonstrate excellent supply chain management capabilities, further share expenses and costs, and continue to rise in gross margin.

Mobile phones: Market share continues to be consolidated. High-end globalization is on the way. In 2024Q2, mobile phone business revenue was 46.5 billion yuan, +27.1%, gross profit 5.65 billion yuan, +16% year over month, -18% month on month, gross margin was 12.1%, down 1.2 pct year on year, mainly due to increased promotion efforts and rising core component prices during the 618 period. 2024Q2, the company's mobile phone shipments reached 42.2 million units, +28.1% year-on-year, with a market share of 14.6%, ranking among the top three in the world for 16 consecutive quarters.

The results of the company's globalization strategy are outstanding. This quarter, the global share reached 14.2%/17.2%/18.4%/21.2%/11.7%/18.6%/14.6% in mainland China/Southeast Asia/India/Middle East/Africa/Latin America/respectively, up 0.8/3.4/4.1/3.1/2.1/1.8pcts year-on-year. From a long-term perspective, as high-end and global strategies continue to advance, there is still room for growth in the revenue and gross margin of the mobile phone business.

The IoT and Internet business reached another record high. Domestic and overseas markets collaborated to generate a record high of 26.8 billion yuan in the 2024Q2 IoT business, a record high of +20.3%, gross profit of 5.28 billion yuan, +35% year-on-month, +31% month-on-month, and a gross margin of 19.7%, an increase of 2.2 pct over the previous year. The growth was mainly driven by categories such as wearables and major appliances. We believe that the company is expected to increase both business revenue and profit through strategies such as redeveloping research and development to build a profit margin base and develop overseas markets.

2024Q2 Internet business revenue was 8.3 billion yuan, or +11%, a record high. Gross profit was 6.47 billion yuan, +17% year over year, +8% month on month, gross margin reached 78.3%, and gross margin reached 78.3%, up 4.2 pct year on year, of which advertising revenue was 6 billion yuan. The increase in the scale and profit margin of the Internet business comes from high-end hardware products and optimization of overseas business structures. We continue to be optimistic that the high-end and globalization of the company's hardware products will provide growth impetus for the Internet business

Profit forecast and investment rating: We believe that the company's mobile phone x AIoT business will continue to benefit from high-end and global layout. The automotive business will continue to improve its market position and financial performance with leading product appeal, supply chain management capabilities, and capacity deployment capabilities. Therefore, the company's anticipated net profit to mother for 2024/2025/2026 was raised from 16.1/19.7/22.6 billion yuan to 20.7/23/26.7 billion yuan. The corresponding PE for the close of August 22, 2024 is 21.1/19.0/16.4 times, maintaining the “buy” rating.

Risk warning: industry competition increases risk, technology upgrade risk, automobile demand falls short of expectations