Strong performance growth in 24Q3 exceeded expectations. The company's 24Q3 revenue increased 30.5% year over year to 92.51 billion yuan (higher than Bloomberg's forecast of 90.3 billion yuan), and adjusted net profit to mother increased 3.9% year over year to 6.23 billion yuan (5.4% higher than Bloomberg's forecast of 5.9 billion yuan). Among them, losses in innovative businesses such as smart electric vehicles narrowed to about 1.5 billion yuan month-on-month, and profits from core businesses after recovering losses increased 0.8% year-on-year to 7.75 billion yuan.

The gross margin of mobile phones gradually improved after bottoming out in Q3, and the scale effect of increasing automobile production capacity continued to be reflected. The gross margin of the 24q3 company decreased by 2.3 pct year on year to 20.4%. Among them, the gross margin of the mobile phone business decreased by 11.7% year on year due to the increase in core component costs, which is in line with our expectations, and we expect the upstream costs of the mobile phone industry to gradually improve starting from 24Q4. Therefore, the gross margin of the mobile phone business improved simultaneously, and the gross margin is expected to remain above 12% for the whole year. The gross margin of the automobile business increased by 1.7 pct month-on-month to 17.1%. We expect that as the scale effect is reflected after the increase in production capacity and the reduction in the benefits for subsequent delivery orders, there is still room for improvement in the gross margin of the automobile business.

Mobile phones: Cars drive users to expand their circle and help the high-end mobile phone strategy enter a new starting point. The company's 24Q3 mobile phone revenue increased 14% year over year to 47.5 billion yuan, shipment volume increased 3.1% year on year to 43.1 million units, and the global market share was 13.8% stable in the top three. The average selling price (ASP) increased 11% year over year to 1102 yuan.

The market share of Xiaomi's high-end smartphones continued to break through upward. The market share in the 4,000-5,000 yuan price range was 22.6%, up 9.7 percentage points year on year, and 6.9% in the 5000-6000 price range, up 2.4 percentage points year on year. A new generation of flagship phones, the Xiaomi 15 series, was released in October 2024, breaking the sales volume of 1 million units faster on the basis of price increases compared to the previous generation. We believe that with the continued implementation of the company's “Full Ecosystem of People and Cars” strategy, the exodus effect brought by Xiaomi cars is expected to continue to expand the user base of Xiaomi phones.

Automobiles: Sprint to deliver 0.13 million units throughout the year, and keep an eye on the progress of Phase II plant construction. Innovative businesses such as the 24Q3 Xiaomi smart electric vehicle generated revenue of RMB 9.7 billion, and 39,790 new cars were delivered in a single quarter, with an average price of 0.239 million yuan (about 0.227 million yuan in Q2). Currently, the Xiaomi SU7 has completed the delivery target of 0.1 million units, sprinting to 0.13 million units throughout the year. The newly released Xiaomi SU7Ultra mass-produced car was unveiled in October, and the number of small orders for 10 minutes exceeded 3,680 units. Intelligent driving is connected to a full-scene end-to-end model. The pioneer version is expected to be launched at the end of December. In terms of production capacity, Xiaomi delivered more than 20,000 units in October, and the Phase II plant is making every effort to catch up with construction. It is expected that commissioning will begin in March and April next year, and delivery will be completed in mid-June.

IoT: Major appliances drive rapid IoT revenue growth, and Xiaomi Home accelerates store expansion. Revenue from 24q3IoT and consumer goods products was 26.1 billion, up 26.3% year over year. Global tablet shipments increased 58% year over year, ranking among the top five in the world and the top three in mainland China. Shipments of air conditioners, washing machines, and refrigerators increased by more than 55%/50%/20% year over year to about 1.7 million/ 0.48 million/ 0.81 million units, driving the revenue of smart appliances up 55% year over year, and driving the gross margin of the IoT business to increase by 2.9 pct/1.0 pct year over year to 20.8%. The offline channel Xiaomi Home is expanding at an accelerated pace. As of 2024/9/30, the number of Xiaomi Home stores in mainland China has exceeded 13,000. We expect the number to reach 15,000 by the end of 24 and 20,000 by the end of next year, exceeding our expectations.

Internet services: Revenue is growing steadily, and there are nearly 0.7 billion monthly active users worldwide. Internet business revenue increased 9.1% year over year to 8.5 billion yuan in 24Q3, of which advertising revenue increased 14.4% year over year to 6.2 billion yuan, and game business was 1.1 billion yuan. The company's user base continued to expand, and the global MAU grew 10.1% year over year to a record high of 0.686 billion people.

Profit forecasting and valuation analysis. We expect Xiaomi's net profit from 2024 to 2026 to increase by 27.7%, 34.1%, and 22.9% to 24.6 billion yuan, 33 billion yuan, and 40.6 billion yuan respectively. The current stock price is 27X/20X/16X for 2024 to 2026, respectively. Considering the company's diversified business layout and the strong market potential brought by the “people and car owners” ecosystem, it maintains a “recommended” rating.

Risk warning: The smartphone market is fiercely competitive; overseas market policy regulations are tightened; core supply chain dependency; SU7 order delivery falls short of expectations; macroeconomic fluctuations.