We expect positive investor sentiment on Xiaomi to last in 2025 given its robust outlook. With strong SU7 demand dynamics, the upcoming YU7 SUV launch in 1H25 and the new capacity release around mid- 2025, we raise 2025-26E sales volume forecasts from 280k/450k units to 350k/580k. Meanwhile, we expect the NDRC's announcement on national electronics consumption subsidy along with Xiaomi's new initiatives, including self-built factory, overseas new retail expansion and AI, to boost Xiaomi's traditional core business growth. We raise our TP from HK$36.0 to HK$50.0 as we roll over our valuation multiple from 2025 to 2026. Reiterate sector top BUY.

Key Factors for Rating

Smart EV business: Following the wild volume beat over target in 2024 at 137k units, the company aims to more than double shipment to 300k units in 2025, but given the stronger demand dynamics and new capacity release around mid-2025, we deem the target a bit prudent with upside potential. We raise 2025-26 sales volume forecasts to 350k/580k units. To better reflect the meteoric deliveries potential and profit upside for its smart EV business, we roll over our valuation multiple from 2025E P/S to 2026E P/S and by adopting 3x 2026E P/S, we raise our target value for smart EV segment (incl. other new initiatives) to RMB434bn, equivalent to HK$18.50. We favour Xiaomi as the biggest beneficiary during China smart EV era backed by its distinct synergies between smartphone, IoT and vehicle businesses under group strategy Human x Car x Home.

Traditional core business: Xiaomi's smartphone and IoT will benefit from NDRC's recent announcement on the inclusion of smartphone, tablets and smartwatches into national consumption subsidy programme though details are not finalised yet. Besides this near-term catalyst, we believe its traditional core business will further benefit from the completion of its self-built factories, high- end smartphone overseas launches, AI development, overseas new retail store expansion and the spillover effects from the EV business. As such, we raise our shipment, ASP and GPM estimates over 2025-26.

Key Risks for Rating

Domestic OEMs competition; Geopolitical conflict and trade war; Component price increase; Tax dispute in India; Unsatisfactory smart driving progress; Smartphone consumption subsidy scale misses expectation.

Valuation

We increase 2024/25E/26E adj. net income by 1%/10%/14% to primarily factor in the increase in EV volume and profit forecasts and the new national consumption subsidy recently announced by NDRC. We increase our TP from HK$36 to HK$50 based on SOTP combining 19x P/E on traditional business and 3x P/S on EV business. Reiterate Xiaomi as top BUY.