3Q24 Results Exceed Our Expectations

The company announced 3Q24 results: revenue of 92.507 billion yuan, up 30.5% year on year, 2.1% higher than our expectations; adjusted net profit of 6.252 billion yuan (including automobile business loss of 1.5 billion yuan), up 4.4% year on year, 3.1% higher than our expectations, mainly because the Internet and IoT business revenue exceeded expectations, and the gross margin of the Internet and automotive business exceeded expectations.

Development trends

Smartphone shipments have been rising steadily in 3Q24, and the share of high-end phones in the Chinese market is impressive. 3Q24 smartphone revenue increased 13.9% year over year to 47.452 billion yuan. In the third quarter, Xiaomi's global smartphone shipments increased 3.1% year-on-year to 43.1 million units, with a market share of 13.8%, remaining the third largest in the world. China's market share increased by 1.2ppt to 14.7% year on year, with the share of high-end mobile phone shipments in the Chinese market increasing 7.9ppt to 20.1% year over year. 3Q24 mobile phone ASP increased 10.6% year over year to 1,102.2 yuan, mainly due to the increase in the share of high-end phones. Looking ahead to 4Q24, the company said the Xiaomi Mi 15 achieved a faster sales breakthrough of one million units with an increase in the starting price. In terms of gross margin, the gross margin of 3Q24 mobile phones decreased by 0.4ppt to 11.7% month-on-month, mainly due to an increase in component prices.

Major appliances have driven IoT gross margins to record highs, and the Internet business has been rising steadily. 3Q24's IoT revenue increased 26.3% year over year to 26.102 billion yuan. Among them, smart device/tablet/wearable revenue increased 54.9%/36.5%/40.2% year over year; IoT gross margin increased by 2.9ppt to 20.8% year over year, mainly due to the increase in the share of high-margin wearables and large appliances. Internet business revenue increased 9.1% year over year to 8.463 billion yuan in 3Q24, mainly due to increased advertising revenue; gross margin increased 3.0 ppt to 77.5% year over year.

Vehicle deliveries hit the annual target of 0.13 million units, and gross margin continued to increase month-on-month. The 3Q24 automobile business revenue was 9.697 billion yuan, of which 0.0398 million units were delivered. The company said it has now delivered more than 0.1 million SU7 units and will continue to hit the target of 0.13 million units for the whole year. 3Q24 automobile gross margin increased by 1.7ppt to 17.1% month-on-month, mainly due to rising production capacity. Furthermore, on October 28, the company released the mass production version of the Xiaomi SU7 Ultra, and orders for Xiaoding exceeded 3,680 units 10 minutes after starting the reservation. Considering the trend of increasing delivery volume and gross margin from quarter to quarter, we believe that the automobile business will form another important pillar of the company, and we are optimistic about the collaborative value brought by the “whole ecosystem of people and vehicles” strategy.

Profit forecasting and valuation

Keep the 2024 profit forecast unchanged, and increase the adjusted net profit for 2025 by 5.1% to 33.914 billion yuan, taking into account the growth of the automobile business. The current stock price corresponds to the adjusted net profit price-earnings ratio of 26.2 times/19.8 times in 24/25. Maintaining an outperforming industry rating and a target price of HK$32.0 (based on SOTP valuation), corresponds to an adjusted net profit price-earnings ratio of 29.1/22 times in 24/25, with room for an increase of 11.1%.

risks

The global macroeconomy affected demand for smartphones and IoT products, and smart car sales fell short of expectations.