Xiaomi Group soared, how does CICC view Xiaomi's performance?

We expect Xiaomi Group's adjusted net profit for 1Q24 to increase by 70.7% year-on-year to 5.521 billion yuan.

Key Points to Watch

The strong growth in smartphone shipments in 1Q24 is expected to lead to a slight decrease in gross profit margin quarter-on-quarter due to the rise in component prices. According to Canalys, Xiaomi's global smartphone shipments in 1Q24 are expected to increase by 33% year-on-year to 40.7 million units, with market share rising by 3 percentage points year-on-year to 14%, ranking third globally. We believe that the strong growth in shipments is partly due to the low base formed by destocking in 1Q23, and also benefits from the company's strong performance in emerging markets such as Africa, Latin America, and the Middle East. In terms of ASP, considering the off-season for new product releases in the first quarter, we expect smartphone ASP to remain relatively stable year-on-year. Taking into account shipments and ASP, we forecast that the company's mobile business revenue in 1Q24 will increase by 30.3% year-on-year to 45.6 billion yuan. As for gross margin, considering the rise in prices of storage and other components, we expect the gross margin of the mobile business in 1Q24 to increase by 3.3 percentage points year-on-year and decrease by 1.9 percentage points quarter-on-quarter to 14.5%.

The outstanding performance of major home appliances is expected to drive the growth of the IoT business, while the Internet business remains stable with growth. We forecast that the company's IoT business revenue in 1Q24 will increase by 21.0% year-on-year to 20.369 billion yuan, with a gross margin increase of 3.3 percentage points year-on-year to 19.0%, mainly due to the increased proportion of high-margin major home appliances and the recovery of overseas IoT demand. As for the Internet business, considering the growth momentum of smartphone shipments, we expect the Internet business revenue in 1Q24 to increase by 10.0% year-on-year to 7.731 billion yuan, with a gross margin increase of 2.7 percentage points year-on-year to 75.0%, mainly due to the increased proportion of high-end smartphone shipments and the recovery of advertiser demand.

The minimum delivery target for cars in 2024 is 100,000 units, and we are optimistic about the long-term growth space of the automotive business. According to the company's announcement, as of April 30, 2024, Xiaomi has received 88,063 confirmed orders for the Xiaomi SU7; the company stated that it is pushing for comprehensive production capacity improvement in the industry chain, aiming to deliver over 10,000 vehicles within three months, with a minimum delivery target of 100,000 vehicles in 2024; with the support of the supply chain, the company expects the gross margin of the Xiaomi automotive business to be 5-10%. Looking ahead, we expect Xiaomi's automotive business to continue to improve delivery capabilities and gross margins, and we are optimistic about the growth space for cars under the "people, cars, and home full ecosystem" strategy.

Profit Forecast and Valuation

We have introduced a forecast for the company's automotive business, and considering that Xiaomi's car delivery target and gross margin exceed market expectations, we have raised the adjusted net profit for 2024/2025 by 9.0%/33.7% to 16.512 billion yuan/17.498 billion yuan. The current stock price corresponds to a P/E ratio of 24.1 times/21.8 times for adjusted net profit in 2024/2025. We maintain an outperform industry rating, based on confidence in the long-term growth of the company's automotive business, and have raised the target price by 27.8% to 23.0 Hong Kong dollars (SOTP valuation), corresponding to a P/E ratio of 34.8/32.8 times for adjusted net profit in 2024/2025, with an upside potential of 28.2% compared to the current stock price

Risk

Global macroeconomic factors affecting demand for smartphones and IoT products, lower-than-expected sales of smart cars