Financial Report Preview | Will Xiaomi Motors contribute to a market value of 900 billion RMB?

Comprehensive self-knowledge often accommodates Xiao Wu.

01. Preface

We continue to be optimistic about XIAOMI-WR. The reasons are as follows:

1. XIAOMI-W's positioning of high quality and low price to a certain extent meets the future consumption trend of consumers. Globally, consumers pursuing value for money will be a long-term trend.

2. XIAOMI-W's business model is clever. XIAOMI-W continues to attract consumers with high-quality and cost-effective hardware, builds a large user ecosystem, and then monetizes through the internet. This model has started to be imitated by competitors like Apple.

In summary, XIAOMI-W's product positioning and business model ensure that future revenue and profits will continue to grow.

1. The XIAOMI-W management team, represented by Lei Jun, is relatively proactive. Lei Jun, as a successful serial entrepreneur (leading Kingsoft to a successful listing and then bringing XIAOMI-W into the Fortune Global 500 in the shortest time), is still tirelessly at the forefront of entering the automotive industry. Not only has he set a good example for the management team, but he also embodies the proactive attitude of the XIAOMI-W management team. Under Lei Jun's influence, the XIAOMI-W management team is not only competent but also very hardworking.

2. XIAOMI-W is also good to its shareholders. Although it does not pay dividends, XIAOMI-W continues to repurchase shares.

3. XIAOMI-W's current valuation is not high. The current dynamic P/E ratio of XIAOMI-W is about 19 times.

The key points of this tracking are as follows:

1. The market generally expects XIAOMI-W's revenue to grow by a high single-digit percentage year-on-year in Q4 2023 (even around 10%), and adjusted net profit to increase by over 150% year-on-year. Breaking down the revenue, smartphone sales are expected to increase by over 10% year-on-year, IoT and consumer goods to decline by a high single-digit percentage year-on-year, and internet services to increase by a high single-digit percentage year-on-year.

2. XIAOMI-W's performance in the smartphone market in 2024 is still good. According to Counterpoint, in the first 6 weeks of 2024, XIAOMI-WR's domestic smartphone sales decreased by 7% year-on-year. However, compared to OPPO, VIVO, and Apple, XIAOMI-W's year-on-year decline is relatively small. According to Canalys, in January 2024, XIAOMI-W's smartphones had a strong start in Southeast Asia, with shipments increasing explosively year-on-year (1.3 million units shipped, +128% year-on-year, 18% market share, ranking 2nd), mainly due to significant breakthroughs in several major markets in Southeast Asia.

3. XIAOMI-W officially announced the launch of its car on March 28th, with the official website showing simultaneous reservations in 29 cities and 59 stores nationwide. However, there is currently a wide difference in market expectations for the volume and price of XIAOMI-WSU7 in 2024. We maintain our forecast that XIAOMI-WR's new energy vehicle sales in 2024 will be 60,000 units, with an average price of 250,000 yuan and a gross profit margin of 5%. Of course, there are still many uncertainties about whether XIAOMI-W's cars can succeed. Although Lei Jun attaches great importance to it and even personally gets involved, the competition in the new energy vehicle market is fierce, and price wars are ongoing, so caution must be maintainedXIAOMI-W surged by 11% after announcing the launch of a new car on March 12:

02. XIAOMI-WR 2023 Q4 Performance

Revenue: Market expectations for XIAOMI-WR's revenue in Q4 2023 are generally forecasted to grow in the mid to high single digits year-on-year, even around 10%. According to CITIC Securities, it is estimated that XIAOMI-WR's revenue in Q4 2023 will be 69.5 billion yuan, up 5% year-on-year. According to Huatai Securities, it is expected that XIAOMI-WR's revenue in Q4 2023 will increase by 11% year-on-year. According to Guosheng Securities, it is estimated that XIAOMI-WR's revenue in Q4 2023 will be 72.7 billion yuan, up 10% year-on-year.

Breakdown of Revenue.

Smartphone Revenue: Market expectations are relatively high, with a year-on-year increase of over 10%, mainly due to a significant year-on-year increase in global smartphone shipments for XIAOMI-W in Q4 2023 (major data consulting firms all indicate a year-on-year increase of over 20%). According to CITIC Securities, it is estimated that XIAOMI-WR's smartphone business revenue in Q4 2023 will be 40.8 billion yuan, up 11% year-on-year.

IoT and Consumer Goods Revenue: Market expectations are generally forecasted to decline in the mid to high single digits year-on-year due to seasonal inventory clearance and the off-season for home appliances. According to CITIC Securities, it is estimated that XIAOMI-WR's IoT and consumer goods business revenue in Q4 2023 will be 20.2 billion yuan, down 6% year-on-year. According to Huatai Securities, it is expected that XIAOMI-WR's IoT and consumer goods business revenue in Q4 2023 will decrease by 7% year-on-year due to fluctuations in home appliance sales.

Internet Services Revenue: Market expectations are generally forecasted to grow in the high single digits year-on-year due to the advancement of high-end smartphones, growth in overseas internet services, and strong domestic advertising business. According to CITIC Securities, it is estimated that XIAOMI-WR's internet services business revenue in Q4 2023 will be 7.8 billion yuan, up 8% year-on-year. According to Huatai Securities, it is expected that XIAOMI-WR's internet services business revenue in Q4 2023 will increase by 8% year-on-year due to strong advertising business.

Gross Margin Breakdown.

Smartphone Gross Margin: Market expectations are generally for a significant year-on-year increase in XIAOMI-W's smartphone gross margin due to cost reductions in components, raw materials, etc. According to CITIC Securities, it is estimated that XIAOMI-WR's smartphone business gross margin in Q4 2023 will be 15%, up 6.82 percentage points year-on-year. According to Huatai Securities, it is expected that XIAOMI-WR's smartphone business gross margin in Q4 2023 will be 16%, up 7.82 percentage points year-on-year, due to lower component costsIoT and Consumer Goods Gross Margin, the market generally expects XIAOMI-WIoT gross margin to slightly decline year-on-year, mainly due to fluctuations in home appliance sales during the off-season and seasonal inventory clearance. According to CITIC Securities, it is expected that the gross margin of XIAOMI-WIoT and consumer goods business in 2023 Q4 will be 14%, a year-on-year decrease of -0.26 percentage points. According to Huatai Securities, it is expected that the gross margin of XIAOMI-WIoT and consumer goods business in 2023 Q4 will be 13.76%, a year-on-year decrease of -0.5 percentage points.

Internet Services Gross Margin, the market generally expects a slight increase in XIAOMI-W Internet Services gross margin, mainly due to the strong performance of high-margin advertising business. According to CITIC Securities, it is expected that the gross margin of XIAOMI-WR Internet Services business in 2023 Q4 will be 75%, a year-on-year increase of +3.45 percentage points. According to Huatai Securities, it is expected that the gross margin of XIAOMI-WR Internet Services business in 2023 Q4 will be 74.41%, a year-on-year increase of +2.86 percentage points, flat compared to the previous quarter, due to the strong performance of the advertising business.

Adjusted Net Profit, the market generally expects a significant year-on-year increase in XIAOMI-W adjusted net profit, driven by better-than-expected revenue growth (mainly driven by smartphones and Internet services business) and better-than-expected smartphone profit margins. According to CITIC Securities, it is expected that the adjusted net profit of XIAOMI-WR in 2023 Q4 will be 3.8 billion yuan, a year-on-year increase of +158%. According to Huatai Securities, it is expected that the adjusted net profit of XIAOMI-WR in 2023 Q4 will be 4.047 billion yuan, a year-on-year increase of +177%. According to Guosheng Securities, it is expected that the adjusted net profit of XIAOMI-WR in 2023 Q4 will be 4 billion yuan, a year-on-year increase of +175%.

03. XIAOMI-WR Smartphone Recent Situation

Domestic Sales of Smartphones, in the first 6 weeks of 2024, XIAOMI-W smartphones' domestic sales volume decreased year-on-year, mainly due to the overall market decline, weak consumer spending, and fewer new product launches; however, compared to OPPO, VIVO, and Apple, XIAOMI-W's year-on-year decline is relatively small. According to Counterpoint, in the first 6 weeks of 2024, XIAOMI-WR smartphones' domestic sales volume decreased by -7%.

Southeast Asia Smartphone Shipments, in January 2024, XIAOMI-W smartphones had a strong start in Southeast Asia, with explosive growth in shipments year-on-year, mainly due to significant breakthroughs in several major markets in Southeast Asia by XIAOMI-W (In Indonesia, XIAOMI-W's sub-brand POCO adjusted its channel strategy, shifted to online platforms, effectively preventing cannibalization with the Redmi series, and received great response in online channels after launching new models, with shipments increasing by 30% year-on-year; in the Philippines, XIAOMI-W launched cost-effective new products; in Vietnam, XIAOMI-W released the Note 13 series and, with marketing strategies, XIAOMI-W's shipments in Vietnam increased by +288% in January compared to the previous year, and its market share increased from 5% in January 2023 to 21% in January 2024) According to Canalys, in January 2024, XIAOMI-WR smartphones shipped 1.3 million units in the Southeast Asia region, a year-on-year increase of +128%, with a market share of 18%, ranking second.

04. Current Situation of XIAOMI-W Cars

XIAOMI-W Cars' new retail model will adopt a dual model of direct operation and authorization. According to Baijiahao "CNMO Mobile China", XIAOMI-W Cars may adopt a dual model of direct operation (XIAOMI-W Home) and authorization. XIAOMI-W Cars' new retail model aims to improve business efficiency and user experience through direct operation and authorization. The direct operation model can ensure the consistency of sales and service quality of XIAOMI-W Cars, while the authorization model can leverage the strength of partners to quickly expand sales and service channels. Currently, XIAOMI-W Cars is actively promoting the implementation of its new retail model and has made a series of significant progress. With the arrival of the first batch of stores and display cars, XIAOMI-W Cars' sales and service system will be further improved to provide consumers with a more convenient and high-quality car purchase and usage experience.

In 2024, the sales volume of XIAOMI-WSU7 is currently widely debated in the market, ranging from 30,000 to 100,000 units, while we estimate it to be 60,000 units (XIAOMI-W's new energy vehicle Phase 1 production capacity is 150,000 units, considering its release in Q1 and formal delivery in Q2, delivering 60,000 units in half a year is neither high nor low). According to Bloomberg analysts Steven Tseng and Woo Jin Ho, the estimated sales volume of XIAOMI-WR new energy vehicles in 2024 is 30,000 to 50,000 units. According to Guotai Junan International, the estimated sales volume of XIAOMI-WR new energy vehicles in 2024 is 50,000 to 100,000 units. According to Jiayin International, the estimated sales volume of XIAOMI-WR new energy vehicles in 2024 is 51,300 units.

In 2024, the selling price of XIAOMI-WSU7 is widely debated in the market, ranging from 220,000 to 360,000 yuan, while we estimate it to be 250,000 yuan (the pricing of 250,000 yuan is mainly based on the previous discussions and after the relevant leakage incident, there is a possibility of price adjustment). According to Bloomberg analysts Steven Tseng and Woo Jin Ho, the estimated selling price of XIAOMI-WR new energy vehicles in 2024 is 220,000 to 260,000 yuan. According to Guotai Junan International, the estimated average selling price of XIAOMI-WR new energy vehicles in 2024 is about 299,000 yuan. According to Kuai Technology, a recent model BJ7000MBEVA1 of XIAOMI-W pure electric sedan has been registered, and the insurance cost is shown as 361,400 yuan for the top configuration (speculated by the public to be around 250,000 to 360,000 yuan) Morgan Stanley previously pointed out that it believes XIAOMI-W's electric vehicles with leading innovative advanced driver assistance systems will be a disruptive force. The integration of "smartphone + electric vehicle + Internet of Things" will also achieve product differentiation. The bank estimates that if the scale expands rapidly, the intrinsic value of XIAOMI-W electric vehicles will reach 90 billion yuan, but the electric vehicle business is expected to still incur losses, dragging down profitability.

Bank of America Securities, on the other hand, predicts that concerns about XIAOMI-W's cars establishing their own distribution channels will lead to increased marketing expenses starting this year. The electric vehicle business is expected to still incur losses, dragging down profitability.

Feel free to like and follow our WeChat account for more research reports on listed companies and the latest research developments!