Key investment points

Incident: The company announced results for the first three quarters of 2024. The company achieved revenue of 256.9 billion yuan in the first three quarters of 2024, +29.9% year-on-year; net profit to mother was 14.63 billion yuan, +14.8% year-on-year. In the third quarter of 2024, the company achieved operating income of 92.51 billion yuan, +30.5% year-on-month, and +4.1% month-on-month; net profit to mother of 5.35 billion yuan, +9.8% year-on-year and +5.0% month-on-month. The company's performance exceeded market expectations.

Automobile gross margin continued to exceed expectations, hitting 0.13 million units throughout the year. 2024Q3 smart car business revenue +52.3% month-on-month to 9.7 billion yuan. The gross margin was +1.7 pct to 17.1% month-on-month, mainly due to lower core component prices and increased sales volume, and diluted unit manufacturing costs. The adjusted net loss of the automobile business in a single quarter was 1.5 billion yuan, a decrease of 16.6% over the previous quarter. The monthly delivery volume of 2024M10 exceeded 0.02 million units, and the company once again raised its annual delivery target to 0.13 million units. The 2024Q3 SU7 Pro & SU7 Max share increased, driving ASP +4.4% month-on-month to 0.239 million yuan/vehicle. Considering that the new SU7 Ultra is expected to be officially released in 2025M3, it is expected to enhance the anchoring brand positioning and further enhance product attractiveness.

We expect that with the delivery of the company's equity order with the bonus lock, there is still room for further upward growth in automobile gross margin, and we expect product delivery to accelerate further after the second phase of production capacity is implemented.

The domestic market share of mobile phones has increased, and high-end technology has been very effective. The 2024Q3 smartphone business achieved revenue of 47.45 billion yuan, +13.9% year over year and +2.0% month over month. The gross margin was -4.9pct to 11.7% year-on-year, mainly due to the increase in the cost of core components. According to Canalys, the company's 2024Q3 mobile phone shipments were +3.2% to 42.8 million units, of which shipments in mainland China were +12.5% YoY to 10.2 million units. The company's 2024 sales volume is +16.4% YoY to 0.17 billion units. 2024Q3's market share in mainland China was +1.2 pct year-on-year to 14.7%, and its shipment volume has been in the top three in the world for 17 consecutive quarters. The 2024M10 launched the new flagship Xiaomi Mi 15 series and Surge OS 2, which are very effective in high-end development.

2024Q3 accounted for +7.9pct to 20.1% of high-end mobile phone shipments in mainland China compared to the same period last year. Among them, the market share of 3-4 thousand/4-5 thousand/5-6 thousand yuan was +9.3/+9.7/+2.4pct to 18.1%/22.6%/6.9% year-on-year, and smartphone ASP was +10.6% to 1102 yuan, respectively. We expect that the growth rate of the company's mobile phone shipments will continue to exceed the market, high-end products will continue to bear fruit, and performance is expected to improve further.

New retail expansion combined with product innovation, and there was a high increase in air-washing shipments. The 2024Q3 IOT business achieved revenue of 26.1 billion yuan, +26.3% year over year and -2.5% month over month. Gross margin was +3.0 pct YoY to 20.8%.

Among them, revenue from major smart appliances was -30.7% month-on-month due to seasonal factors in air conditioning sales. The number of 2024Q3 offline retail stores surpassed 0.013 million. The company guides the number to increase to about 0.015/0.02 million by the end of 2024/2025, drastically increasing the speed and continuous improvement of store location and area. Benefiting from new offline retail expansion, shipments of tablets/smart appliances/wearable products were +85%/+44%/+52% year-on-year in the first three quarters. Among them, shipments of air conditioners/refrigerators/washing machines in the third quarter increased 55% +/ 20% +/ 50% + year over year, respectively, to 170+/81+/480,000 units. We believe that the company's domestic and overseas markets are working in both directions, and the IoT business ceiling will continue to open up.

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. At the same time, considering that the automobile business continues to invest heavily in R&D this year, we adjusted the company's projected net profit for 2024/2025/2026 from 20.7/23/26.7 billion yuan to 19.8/23.2/27.7 billion yuan, 2024 The corresponding PE at the close of November 19 was 33.3/28.4/23.7 times, respectively, maintaining the “buy” rating.

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