Moving forward, the “whole ecosystem of people, cars, and families” strategy has been upgraded. As a consumer electronics and intelligent manufacturing company with smartphones, smart hardware, and IoT platforms as the core, the company's strategy was upgraded to a “whole ecosystem of people and cars” in 2023, opening up new ground in the field of smart electric vehicles. Xiaomi Group's 18-23 revenue CAGR reached 9.15%, and adjusted net profit CAGR reached 17.64%. 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, a record high of +32.0% year over year; adjusted net profit reached 6.2 billion yuan, +20.1% year over year. By business, 2Q24 smartphone business revenue was 46.5 billion yuan, YOY +27.1%, gross profit margin 12.1%; IoT and consumer products revenue was 26.8 billion yuan, YOY +20.3%, a record high, with gross margin of 19.7% and YOY+2.2pct; Internet service revenue of 8.3 billion yuan, YOY +11.0%, gross margin of 78.3%, YOY+4.2pct. Research and development of smart electric vehicles continues to increase. 2Q24's R&D investment reached 5.5 billion yuan, a year-on-year increase of 20.7%.

The strength of mobile phone brands continues to improve, and AI is building new growth points. Xiaomi 24Q2 shipped 42.2 million smartphones worldwide, YOY +28.1%, ranking in the top three, with a market share of 14.6%. 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. The acceleration of the era of end-side AI will drive the smartphone industry to continue to grow. From the perspective of “volume”, the penetration rate of AI phones will continue to increase; from the perspective of “price”, innovative features of AI phones will drive terminal sales prices, and manufacturers will receive more increases.

AloT is rich in categories, leading the Internet of Everything platform. Over the past five years, revenue from IoT and consumer products showed an overall upward trend. Revenue rose from 62.1 billion yuan to 80.1 billion yuan in 2019-2023, with a compound annual growth rate of 6.6%, and gross margin increased from 11.2% to 16.3% in 2019-2023. In 24Q2, Xiaomi's IoT business achieved a year-on-year increase in revenue and gross margin. Revenue was 26.8 billion yuan, up 20.3% year over year, and gross margin reached 19.7%, a record high.

A new decade, a new journey, and a comprehensive layout for car construction. In March '21, Xiaomi officially announced plans to build cars and officially enter the NEV sector. In December '23, the Xiaomi SU7 was officially unveiled. In 2Q24, innovative businesses such as smart electric vehicles achieved revenue of 6.4 billion yuan, with a gross margin of 15.4%. Of these, smart electric vehicle revenue was 6.2 billion yuan, and the Xiaomi SU7 series delivered 27,307 new vehicles. The company expects to complete the Xiaomi SU7 series's goal of delivering 0.1 million new vehicles ahead of schedule in November 2024, and the SU7 series sprint to the new target of delivering 0.12 million new cars throughout 2024. “The whole ecosystem of people and cars” will compose Xiaomi in the new decade.

Investment advice: We expect the company to achieve revenue of 342.235/374.529/439.395 billion yuan in 24-26 and net profit of 19.675/22.117/25.784 billion yuan, corresponding to current PE price 22/20/17 times, respectively. We are optimistic about the company's “full ecosystem of people, cars and cars” development strategy and maintain a “recommended” rating.

Risk warning: downstream demand falls short of expectations; market competition intensifies; new businesses such as car construction fall short of expectations.