Electric vehicles are booming, looking forward to SUVs! Morgan Stanley calls on Xiaomi "not to get off too early"!

In the second quarter report released in August, Xiaomi's foray into car manufacturing "boosted" the group to deliver its "best quarterly report ever," with revenue hitting a historical high.

On the eve of Xiaomi's third quarter report set to be released next Monday, Morgan Stanley issued a report stating: Xiaomi remains the top choice, don't get off too early!

Morgan Stanley expects Xiaomi to continue providing an "optimistic" third quarter report, raising its target price for Xiaomi (01810.HK) from HKD 26 to HKD 35, based on Friday's closing price, which implies a 25% upside potential for Xiaomi's stock price. The upcoming SUV model is expected to be an important catalyst.

In terms of financial performance, Morgan Stanley predicts that Xiaomi's earnings per share (EPS) will reach HKD 0.88 in 2024, and will further rise to HKD 0.98 and HKD 1.09 in the following two years.

Morgan Stanley: Any pullback is a "good entry opportunity"!

In the financial report, Morgan Stanley maintained its "overweight" rating on Xiaomi, stating that any pullback could be a good entry opportunity for long-term investors.

Regarding the electric vehicle business, the research report pointed out that Xiaomi's electric vehicle shipments exceeded 20,000 units in October, marking a significant milestone in the company's capacity enhancement.

At the same time, with the continuous growth of orders for the Xiaomi SU7 model, the backlog of orders has exceeded expectations, with delivery wait times exceeding 20 weeks, indicating that strong sales momentum will continue.

Currently, Xiaomi is expanding its distribution and service network and has begun construction on its second electric vehicle factory, which will help boost revenue growth and scale advantages.

Additionally, Morgan Stanley stated that for the newly launched SU7 Ultra, although it is not expected to become a significant sales driver, it has significantly enhanced the brand image.

The report indicated that although the model is priced high, the market response has been very enthusiastic: the pre-sale price of the Xiaomi SU7 Ultra is HKD 814,900, and within 10 minutes of opening reservations, the number of orders exceeded 3,680.

Considering all the above factors, Morgan Stanley has raised its annual sales forecast for Xiaomi's vehicles from 230,000-250,000 units to 260,000-400,000 units, while maintaining its gross margin expectations, predicting that the cumulative gross profit from vehicles between 2024 and 2026 will increase from HKD 34.9 billion to HKD 39.3 billion.

It is expected that after the launch of the second electric SUV, Xiaomi's market share in electric vehicles will reach 2.6% in 2025 and 3.4% in 2026.

In terms of the smartphone business, the report believes that although the pricing of Xiaomi's new smartphones has increased, the sales momentum remains strong. Morgan Stanley's supply chain checks found that orders for models such as the Xiaomi 15 have still increasedMorgan Stanley believes that the increase in average selling prices helps to pass on component costs, which is beneficial for profit margins in the next 6-12 months; if component costs decrease in 2025, it may bring surprises to gross margins.

In terms of AIoT business, the report states that the AIoT business performed outstandingly in the second quarter, with significant growth in the shipment of tablets, air conditioners, refrigerators, and washing machines. Data shows that in the past few quarters, Xiaomi's AIoT gross margin has increased from 13-15% to 19-20%.

Morgan Stanley expects that with the optimization of the product mix and cost synergies, the gross margin of AIoT is expected to continue to improve.