小米集团-W(01810.HK):盈利能力持续改善 看好智能手机业务环比恢复

Xiaomi Group-W (01810.HK): Continued improvement in profitability, optimistic about the month-on-month recovery of the smartphone business

中金公司 ·  05/07  · Researches

Adjusted net profit for 1Q23 is forecast to increase 6.8% year-on-year

We expect Xiaomi Group's adjusted net profit for 1Q23 to increase 6.8% year-on-year to 3,052 billion yuan.

Key points of interest

Smartphone shipments are under pressure, and gross margin is expected to improve significantly. According to Canalys, Xiaomi's global smartphone shipments fell 22% year on year to 30.5 million units in 1Q23, and market share fell 2ppt to 11% year on year, continuing to remain third in the world. We believe that the decline in shipment volume is mainly due to continued slump in market demand in the first quarter, while the company continued to clear inventory. In terms of ASP, we expect a slight year-on-year decline in ASP for mobile phones in 1Q23, and a slight increase from month to month, mainly due to inventory clearance. In terms of new products, the company released a new generation of digital flagship phones, the Xiaomi 13 series, at the end of 2022, which performed well in the domestic market. We expect it to drive the improvement of mobile phone ASP in the domestic market. Based on shipments and ASP, we expect 1Q23 smartphone revenue to drop 25.0% year-on-year to 34.334 billion yuan. In terms of gross margin, considering the price reduction of components such as upstream storage, we expect 1Q23 mobile phone gross margin to increase 1.1 ppt/2.8 ppt over the previous month to 11.0%.

Demand for IoT is sluggish, and internet business remains stable. Considering the continued slump in demand in the global consumer goods market in the first quarter, we expect 1Q23's IoT business revenue to drop 15.6% year-on-year to 16.439 billion yuan; IoT gross margin increased 0.2 ppt/1.5 ppt to 15.8% month-on-month, mainly due to price reductions for panels and other components and product structure optimization. In terms of the Internet business, we expect 1Q23 Internet business revenue to be 7.041 billion yuan, which is basically stable over the previous year. Considering the accelerated pace of game version distribution, the game business may show impressive performance; gross margin increased by 0.8ppt to 71.5% over the same period last year. Looking at the three businesses in total, we expect gross margin to increase by 2.4ppt to 19.7% year-on-year in 1Q23, mainly due to an increase in gross margins for all businesses, and an increase in the share of high-margin Internet businesses. We believe this shows that the company's strategy to improve profitability is beginning to bear fruit.

Profitability continues to improve, and keep an eye on the progress of the car building business. We expect the company's core business expenses (excluding investment in innovative businesses such as car building) to decrease year-on-year in 1Q23, reflecting the company's continuous efforts to reduce costs and increase efficiency starting in 2022. Looking ahead to 2023, we expect smartphone shipments starting from 2H23 to increase month-on-month as demand recovers and the company's mobile phone inventory is cleared. At the same time, profitability improvements brought about by higher gross margin, lower costs and increased efficiency are expected to continue. In terms of car building, the company said it will invest 7.5-8 billion yuan in innovative business in 2023, and plans to mass-produce smart cars in 1H24. We are optimistic that the smart car business will advance steadily, opening up space for the company's long-term growth.

Profit forecasting and valuation

We kept our adjusted net profit unchanged for 2023/2024. The current stock price corresponds to the price-earnings ratio of the 2023/2024 core business (excluding automobile construction) adjusted net profit of 14.4/11.6 times. Maintaining an outperforming industry rating and a target price of HK$14.5 corresponds to the price-earnings ratio of the core business in 2023/2024 of 18.7/15.1 times, with room for an increase of 29.9% compared to the current stock price.


Demand for smartphones and IoT products is low, competition in the industry is intensifying, and car building progress is lower than expected.

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