Financial Report Preview | XIAOMI-W's Q1 revenue is expected to drop by 20%, dragged down by its mobile phone business, focus on progress in car manufacturing.

On Wednesday, May 24th, XIAOMI-W will release its Q1 2023 financial report.

Institutions predict that XIAOMI-W's revenue will be under pressure, but its profitability is expected to improve. While new businesses continue to be invested in, controlling costs and increasing efficiency in traditional businesses will be the highlight.

Guotai Junan stated that looking ahead to the full year of 2023, with further optimization of overseas inventory and product structure, overall revenue is expected to increase compared to the previous year, gross profit margin is expected to remain at a good level, and cost control will continue. Therefore, lean growth is the main theme, and scale and profit are the core focus.

Q1 Financial Forecast

Dongwu Securities predicts that XIAOMI-W's total revenue in Q1 will decrease by 24% year-on-year, while adjusted net profit will increase by 5% year-on-year.

Guotai Junan stated that XIAOMI-W's overall revenue in Q1 is about RMB 59 billion, a year-on-year decrease of 19.7%; adjusted net profit is about RMB 3 billion, a year-on-year increase of 5%.

If the cost of new business investment and other expenses is added, it will exceed RMB 4 billion, proving that the main business is maintaining a benign development. Revenue is expected to be under pressure due to external factors, but profitability may improve significantly.

CITIC Securities predicts that XIAOMI-W's overall revenue in Q1 2023 will be RMB 58.8 billion (a year-on-year decrease of 20% and a quarter-on-quarter decrease of 11%), and non-GAAP net profit will be RMB 3 billion (a year-on-year increase of 5% and a quarter-on-quarter increase of 105%).

Mobile Business

According to Canalys data, global smartphone shipments in Q1 2023 were 270 million units, a year-on-year decrease of 13% and a quarter-on-quarter decrease of 9%. Among them, XIAOMI-W's shipments were 30.5 million units, a year-on-year decrease of 22% and a quarter-on-quarter decrease of 8%.

Guotai Junan stated that although Q1 shipments have declined, the previously constraining factors of exchange rate fluctuations and inventory price declines have narrowed, and the good performance of high-end phones will drive up ASP quarter-on-quarter. It is expected that Q1 revenue will be about RMB 36 billion, a year-on-year decrease of 21.3%, and gross profit margin will be about 11%.

CITIC Securities stated that it is expected that revenue from the smartphone business will decrease by 25% year-on-year to RMB 34.5 billion, and quarter-on-quarter will decrease by about 6%. Considering the decrease in raw material costs and the optimization of product mix, gross profit margin is expected to improve significantly year-on-year and quarter-on-quarter.

In addition, CITIC Securities stated that revenue from IoT business will decrease by 15% year-on-year to RMB 16.6 billion, and revenue from Internet business will be RMB 7 billion, basically the same as the previous year.

Investment Advice

Dongwu Securities stated that it has raised XIAOMI-W's EPS for 2023 to RMB 0.5, maintained EPS for 2024 at RMB 0.6, and raised EPS for 2025 to RMB 0.7 (previous value was RMB 0.6), corresponding to PE ratios of 20.3/17.0/15.0 times.

Considering that XIAOMI-W's high-end smartphone development is still ongoing, car manufacturing is expected to provide long-term growth momentum, and new downstream products such as ChatGPT are emerging, it maintains a "buy" rating.

CITIC Securities stated that it is optimistic about XIAOMI-W's long-term investment value. Considering the view that the investment in car manufacturing does not change the value of the company's main business in smartphones and AIOT, it tends to add its expenses back to the valuation of the company's main business. It refers to Apple's current stock price corresponding to a PE valuation of 28x in 2023 (Bloomberg consensus forecast), and based on the company's high certainty of performance growth and industry competitive position, it discounts by 30% appropriately. Giving XIAOMI-W 2023E 20x PE, corresponding to a target price of HKD 16, and maintaining a "buy" rating.

About the car-making business

Dongwu Securities stated that the competition in the new energy vehicle market is intensifying, and the company is continuously seizing opportunities. The company is increasing its research and development investment, deeply deploying in the field of intelligent vehicles, and investing CNY 7.5-8 billion in 2023.

It is expected that XIAOMI-W, with its strong research and development capabilities and a huge customer base, will occupy a place in the smart electric vehicle market in the second half of the year.

Guotai Junan stated that XIAOMI-W's car-making business is progressing smoothly, and the overall strategy is more focused on both scale and profit.

CITIC Securities stated that it is expected that XIAOMI-W will increase its investment in innovative businesses such as intelligent vehicles in 2023, following the pace of 2022, and the investment in the first quarter will be basically flat compared to the previous quarter.