24Q3 results

Overall performance: Revenue hit a record quarterly high, and profits significantly exceeded Bloomberg's agreed expectations. In the third quarter, Xiaomi's revenue was 92.5 billion yuan, YOY +30.5%, surpassing Bloomberg's consensus forecast of 2.5%; GAAP operating profit recorded 6.04 billion yuan, surpassing Bloomberg's agreed forecast of 17.7%; adjusted net profit of 6.25 billion yuan, exceeding Bloomberg's agreed forecast of 5.8%;

By business: 1) Mobile phone business: revenue recorded 47.45 billion yuan (yoy +13.9%), slightly higher than Bloomberg's forecast of 1.8%; 2) IoT business: revenue recorded 26.1 billion yuan (yoy +26.3%), higher than Bloomberg's estimate of 3.8%; 3) Internet business: revenue recorded 8.46 billion yuan (yoy +9.1%), slightly higher than Bloomberg's forecast of 0.4%; 4) Innovative businesses such as smart cars recorded revenue of 9.7 billion yuan, exceeding Bloomberg's expectations of 8.9%.

Automobile gross margin increased to 17%, and Q4 is expected to usher in further improvements 1) The automobile business exceeded market expectations, volume and price rose sharply, and the annual delivery target was raised to 0.13 million vehicles. The automobile & innovation business revenue was 9.7 billion yuan, exceeding market expectations by 8.9%; vehicle deliveries were nearly 0.04 million vehicles (0.027 million units in the previous quarter), and ASP was 0.239 million yuan (0.229 million yuan in the previous quarter); 2) The gross margin of the automobile business increased significantly, significantly exceeding market expectations. The gross margin of the automotive business reached 17.1%, a month-on-month increase significantly higher than BBG's agreed estimate of 12.1%. The reason for the continuous optimization of automobile gross margins is because the capacity utilization rate continues to increase, and the scale effect is evident. In October of this year, the delivery volume of the Xiaomi SU7 exceeded 0.02 million units, and capacity utilization continued to increase. It is expected that the unit production cost will drop further, and the benefits for subsequent delivery orders will decrease. We judge that the gross margin of Q4 cars will still increase sequentially.

High-end mobile phones have increased significantly. ASP increased significantly, and the month-on-month decline in mobile phone gross margin narrowed 1) 24Q3. Xiaomi's global smartphone shipments reached 43.1 million units, up 3.1% year on year. The domestic market share increased month-on-month for four consecutive quarters. The ASP side increased +10.6% year over year in the third quarter, and the growth rate corrected for the first time in the year. The high-end strategy has been effective. For domestic models over 3,000 yuan, Xiaomi's market share reached 21.3% in the first nine months (17.4% in the same period last year).

In the third quarter, the market share of domestic 3k-4k yuan models was +9.2ct to 18.1% year-on-year, and the 4k-5k yuan model market share was +9.7pct to 22.6% year-on-year.

2) The decline in mobile phone gross margin narrowed month-on-month, and there are signs of stabilization. Along with the subsequent decline in supply chain costs, the gross margin of the mobile phone business is expected to open up an upward growth channel. It is recommended to continue to pay attention to subsequent changes in mobile phone gross margin. The gross margin of mobile phones in the third quarter was 11.7%, -0.4 pct month-on-month (the gross margin of mobile phones in Q1-Q2 this year was 14.8% and 12.1%).

3) The sales volume of the Xiaomi Mi 15 is booming, so it is recommended to focus on the increase in demand for switches driven by AI. At the end of October this year, Xiaomi released the Xiaomi 15 series and the system-level AI Surge OS2. The market response was strong. The Xiaomi 15 series achieved a sales breakthrough of 1 million units at a faster rate than the 14 series. It is recommended to focus on the increase in demand for switches brought about by subsequent AI feature upgrades. At the same time, due to the price increase of the Xiaomi 15 series, the mobile phone business ASP is expected to grow further in the fourth quarter.

IoT continues to grow strongly, with major appliances driving up gross profit

Xiaomi's washing machine and refrigerator shipments reached a record high this quarter. Refrigerators shipped more than 0.81 million units, more than 20% year on year, washing machine shipments exceeded 0.48 million units, more than 50% year on year, and air conditioner shipments exceeded 1.7 million units, over 55% year on year. Driven by the high growth of smart appliances, the gross margin of the IoT business was further optimized. This quarter's gross margin reached 20.8%, +1.1 pct compared to the previous quarter. In October of this year, the Xiaomi Smart Home Appliance Experimental Center was officially put into operation, and the core IoT self-research capabilities are expected to be further improved.

Investment advice

We expect the company's revenue in 2024/2025/2026 to be 357.4/436/515.7 billion yuan, achieving +32%/+22%/+18% YoY; adjusted net profit of 240 /281/35.7 billion yuan, achieving +25%/+17%/+27% YoY, maintaining a “buy” rating.

Risk warning

Raw material costs for the hardware business have risen; production capacity in the automotive business has fallen short of expectations.