[Key investment points]

In the first half of 2024, the company achieved revenue of 164.395 billion yuan, a year-on-year increase of 29.62%, and achieved revenue of 88.888 billion yuan in Q2, an increase of 31.97% over the previous year. Net profit to mother in the first half of the year was 9.28 billion yuan, up 17.86% year on year. In Q2, net profit to mother was 5.098 billion yuan, up 38.91% year on year. The comprehensive gross profit margin for the first half of the year was 21.43%, up 1.12% year on year. The sales expense ratio, management expense ratio, and R&D expense ratio were 6.92%, 1.65%, and 6.48% respectively. Apart from a slight increase in the sales expense ratio, the management expense ratio and R&D expense ratio all declined year on year.

The company's total revenue in 2024Q2 reached a record high. In terms of composition, Q2 mobile phone revenue of 46.5 billion units increased 27.1% year on year, and the gross profit margin decreased by 12.1% year on year, and the gross profit margin decreased by 1.2% year on year, mainly due to market competition and component price increases. Canalys data showed that Q2 had a market share of 14.6% in global shipments, making it the brand with the fastest year-on-year growth rate in the top five. The company's global smartphone shipments also ranked in the top three in the world for 16 consecutive quarters. In July 2024, the company released the full-equipped flagship Xiaomi MIX Fold 4, and also released Xiaomi's first small folding Xiaomi MIX Flip. In terms of high-end technology, 24Q2, the share of high-end smartphone shipments of companies in mainland China increased by about 22.1% year on year. Among them, the market share in the 3,000-4000 yuan price segment increased 5.4% year on year, the market share in the 4,000-5000 yuan price range increased 3.5% year on year by 20.1% year on year, and the market share of 5,000 to 6000 yuan increased 2.3% year on year.

Q2 Revenue from IoT and consumer products increased 20.3% year on year by 26.8 billion, gross margin increased 2.1% year on year to 19.7%, and gross margin of major wearables and major appliances increased. Among them, revenue from major appliances increased 38.7% year over year, Q2 air conditioners shipped over 3.3 million units 40% + year over year, refrigerators over 0.6 million units 25% + year over year, and washing machines over 0.4 million units 30% + year over year. Q2 tablet revenue increased 67.6% year over year, shipments of 2.1 million units increased 106.4% year over year, and global share increased 2.6% to 6.0% year over year.

Q2 Wearable revenue increased 31.0% year over year. The company ranked in the top three global shipments of TWS headphones and the top three in global shipments of wearable wristbands. TV and computer revenue increased 1.1% year over year.

Q2 Internet business revenue was 8.3 billion, up 11.0% year on year, and gross profit margin increased 4.2% year on year by 78.3%, mainly due to an increase in advertising gross margin. The size of the company's users continued to expand. In June 2024, the number of monthly active users worldwide reached 675.8 million, an increase of 11.5% over the same period last year. Among them, advertising revenue of 6 billion yuan increased 16.9% year over year, while game revenue of 1 billion yuan remained flat year over year.

In terms of electric vehicles, the company's first smart electric vehicle, the Xiaomi SU7 series, was officially released in March 2024. Innovative business segments such as 24Q2 smart electric vehicles generated revenue of about 6.4 billion yuan, of which the smart electric vehicle revenue was 6.2 billion yuan, and other related revenue was 0.2 billion yuan. Q2 Innovative businesses such as electric vehicles had a gross profit margin of 15.4%. In the second quarter of 2024, the Xiaomi SU7 series delivered 27,307 new vehicles. A total of 0.1 million SU7 vehicles are expected to be delivered in November 2024, and it is planned to sprint to deliver 0.12 million SU7 vehicles throughout the year. In terms of stores, as of the first half of the year, companies in 30 domestic cities had opened 87 car sales stores. In July 2024, the company released the SU7 Ultra, which uses a full carbon design and is equipped with dual Xiaomi V8s supermotors and Xiaomi V6s, reaching 1,548 PS horsepower. In terms of intelligent driving, the company launched the Urban Pilot Assist Function (Urban NOA) in 10 domestic cities in June 2024, and plans to launch it nationwide in August.

[Investment advice]

The Xiaomi Group is an internet company centered on mobile phones, smart hardware, and IoT platforms. The company has achieved success through innovation such as R&D model, industrial chain organization, pricing, marketing, etc., focusing on high cost performance.

Under Lei Jun's leadership, Xiaomi was founded in 2010 by a group of experienced engineers and designers. The company always pursues technological innovation, product quality, design, user experience and efficiency improvement, and is committed to continuously providing the best technology products and services at reasonable prices. Currently, in the mobile phone sector, the company is steadily implementing a high-end smartphone strategy. Further, the company proposed an upgrade strategy for people, cars, and homes to meet the needs of all customers in the same intelligent ecosystem. The company is expected to open up a new growth curve for the electric vehicle sector in the future. We have updated our profit forecast. We expect the company's 2024/2025/2026 revenue to be 351.49/389.754/434.564 billion yuan, respectively, and net profit to mother of 20.442/22.992/26.195 billion yuan, respectively. The corresponding PE is 25.93/23.06/20.24 times, respectively, maintaining the “increase” rating.

[Risk Reminder]

the risk of consumer electronics demand and supply chain fluctuations;

the risk of foreign exchange fluctuations;

the risk of new automotive business expansion falling short of expectations;

The risk of increased competition in the industry.