UBS downgrades Xiaomi's rating from "Buy" to "Neutral"

Benefiting from the extension of China's subsidy policy, the target of delivering 300,000 electric vehicles by 2025, and the successful launch of the SU7 Ultra, Xiaomi Group's stock price has risen by 60% from the beginning of 2025 to the present. UBS has downgraded its rating on Xiaomi from "Buy" to "Neutral," raising the target price from HKD 33.50 to HKD 60.00. UBS believes that Xiaomi's stock price has already reflected the growth potential of its core business and electric vehicle (EV) business, with limited upside potential in the future, and the risk-reward balance is tending to be even. Currently, Xiaomi's stock price is HKD 53, and UBS's target price is HKD 60.00, indicating an upside potential of about 15%. Xiaomi's current price-to-earnings ratio (PE) is 40 times, significantly higher than its 5-year average of 22 times, at a historical high. UBS values Xiaomi's core business at a projected PE of 23.8 times for 2026, and the EV business at a projected price-to-sales ratio (P/S) of 2.0 times for 2026. UBS believes that Xiaomi's valuation has already reflected its future growth potential, especially the rapid growth of the EV business. For various core business segments of Xiaomi, UBS has made the following forecasts: Smartphone business: UBS expects Xiaomi's smartphone shipments to maintain high single-digit growth, with the proportion of high-end models (priced above RMB 3,000) increasing from 18% in 2023 to 26% in 2026. Xiaomi's smartphone shipments are expected to reach 191 million units in 2025 and 204 million units in 2026

Xiaomi's current price-to-earnings ratio (PE) is 40 times, significantly higher than its 5-year average of 22 times, at a historical high. UBS values Xiaomi's core business at a projected price-to-earnings ratio of 23.8 times for 2026, and the EV business at a projected price-to-sales ratio (P/S) of 2.0 times for 2026. UBS believes that Xiaomi's valuation has already reflected its future growth potential, especially the rapid growth of the EV business.

UBS's forecasts for Xiaomi's various core business segments are as follows:

Smartphone Business: UBS expects Xiaomi's smartphone shipments to maintain high single-digit growth, with the share of high-end models (priced above RMB 3,000) increasing from 18% in 2023 to 26% in 2026. Xiaomi's smartphone shipments are expected to reach 191 million units in 2025 and 204 million units in 2026.

IoT Business: Xiaomi's IoT business revenue is expected to reach RMB 30 billion in 2024 and grow to RMB 57.7 billion in 2026. UBS believes that Xiaomi's IoT business will continue to benefit from demand growth in the Chinese market and expansion into overseas markets.

Internet Services: Internet services revenue is expected to maintain stable growth, reaching RMB 42.6 billion in 2026.

Electric Vehicle Business: UBS has raised its forecast for Xiaomi's EV deliveries in 2025 from 305,000 to 400,000 units, and for 2026 from 580,000 to 800,000 units, expecting Xiaomi's EV business to achieve breakeven in 2026, with a gross margin (GM) of around 20%. The valuation of Xiaomi's EV business has been raised from RMB 164 billion in 2025 to RMB 311 billion in 2026, mainly based on higher delivery volumes and market expectations.

Risks and Catalysts

Upside Risks: The launch of AI glasses may further enhance Xiaomi's IoT sales and AI ecosystem; successful sales of the SU7 and YU7 may drive revenue and valuation growth in the EV business.

Downside Risks: Insufficient expansion of EV production capacity may lead to a loss of market share; a weakening of China's subsidy policy may negatively impact the smartphone and IoT businessesOverall, UBS remains optimistic about Xiaomi's future, believing that both its core business and EV business have significant growth potential. However, the current valuation already reflects these growth expectations, and there is limited upside potential in the future, requiring new catalysts to drive further increases