Event: The company released 2Q24 results, achieving revenue of 88.9 billion yuan, a year-on-year increase of 32%. Among them, the company's three core businesses all achieved strong revenue growth. Smartphone/IoT/Internet business revenue increased 27.1%/20.3%/11.0% year on year, respectively. 2Q24 achieved a gross profit margin of 20.7% and non-IFRS net profit of 6.2 billion yuan, a year-on-year increase of 20.1%, corresponding to a record high of 6.9% in non-IFRS net profit. Among them, innovative businesses such as smart electric vehicles had adjusted net losses of 1.8 billion yuan.
Smartphone shipments have steadily ranked third in the world, and gross margin declined month-on-month in 2Q24 but is still at an all-time high.
2Q24 smartphone business revenue reached 46.5 billion yuan, with shipments reaching 42.2 million units, up 28.1% year on year (vs global smartphone market shipments yoy +11.9%), mainly due to a sharp increase in shipments from emerging markets such as Latin America, Southeast Asia, the Middle East and Africa; ASP fell 0.8% year over year to 1104 yuan, mainly due to increased competition in mainland China and increased sales volume in emerging markets where ASP is low. The gross margin of 2Q24 mobile phones fell 2.7 pcts to 12.1% month-on-month, mainly due to increased 618 promotions and rising prices of core components. Looking ahead: We expect mobile phone shipments to exceed 0.165 billion units in 2024, corresponding to 3Q24/4Q24 shipments of about 42 million units; on the profit side, we expect the gross margin of 3Q24 phones to be between 11% and 12%, or the lowest point in the whole year, and as storage manufacturers' price increases and the Q4 flagship new model pull-up effect, 4Q24 mobile phone gross margin is expected to pick up somewhat, corresponding to a gross margin of 12+% for the whole year.
Both IoT and internet business revenue reached record highs. 1) IoT business: 2Q24 revenue increased 20.3 year over year. % to 26.8 billion yuan, gross margin increased sharply by 2.2 pct to 19.7% year on year, mainly benefiting from the combined increase in revenue and gross margin of high-margin products such as smart appliances, tablets, and wearable products. 2) Internet business: 2Q24 revenue increased 11% year over year to a record high of 8.3 billion yuan, and gross margin increased 4.2 pct to 78.3% year over year, mainly driven by a 16.9% year-on-year increase in revenue from advertising businesses with high gross margin.
Looking ahead, we believe that due to the peak advertising season, the gross margin of the Internet business in Q2 may be relatively high. It is expected that 3Q/4Q24 Internet business revenue will continue to grow steadily, with gross margin of 75+%.
The SU7 2Q24 completed the delivery of 0.027 million vehicles, and the gross profit of the smart EV segment is expected to increase steadily. 1) Xiaomi delivered 27,307 SU7 SU7 cars in 2Q24. The 7M24 Xiaomi car factory has started double shift production and production line optimization and maintenance to fully expand production capacity. The company has now clearly raised the delivery target from 0.1 million vehicles to 0.12 million vehicles. Looking forward to the future, considering the initial land acquisition at the Xiaomi Phase II plant, we expect that in 2025, Xiaomi will still mainly rely on Phase I production capacity. 2) The total revenue of innovative business segments such as 2Q24 smart electric vehicles was 6.4 billion yuan, with a gross margin of 15.4%. It mainly benefited from SU7's sales exceeding expectations, price support from the supply chain, and reuse of management capabilities accumulated in the consumer electronics sector. Looking forward to the future, the gross margin of 3Q24-4Q24 vehicles is expected to increase steadily as production capacity gradually climbs, scale effects show, and cancellation of many ancillary benefits.
Profit forecasting, valuation and ratings: We expect the company's three traditional core businesses to maintain a good growth momentum as high-end mobile phones+new retail strategy+international business continues to advance, while the automobile business achieved a gross profit margin of 15.4% in the first model and first quarter. Profitability exceeds market expectations, and is expected to successfully open Xiaomi's second growth curve. We raised 2024-26 non-IFRS net profit to 21.3/26.1/33.2 billion yuan (increase of 28%/43%/58%) and upgraded the company to a “buy” rating.
Risk warning: mobile phone shipments are under pressure; overseas market expansion falls short of expectations; Internet monetization falls short of expectations