Xiaomi YU7, self-developed chip, new machine "scheduled", Goldman Sachs: Buy!

On May 19th, Xiaomi Auto announced on its official Weibo that it will release the Xiaomi SUV model YU7 at 19:00 on May 22nd, along with the self-developed mobile phone SoC chip Xuanjie O1 and the Xiaomi 15S Pro flagship phone on the same day.

Lei Jun revealed that there are many heavyweight new products this time: the mobile phone SoC chip Xiaomi Xuanjie O1, Xiaomi 15S Pro, Xiaomi Pad 7 Ultra, and Xiaomi's first SUV Xiaomi YU7, among others.

After the news was announced, related topics briefly surged to the trending searches.

According to news from the Chasing Wind Trading Platform, on the 18th, Goldman Sachs released a research report, predicting that Xiaomi's performance in the first quarter for smartphones, major appliances, and tablets will be strong. Xiaomi continues to gain market share in the smartphone sector, especially in the Chinese market, where its high-end strategy is steadily advancing. Although global smartphone shipment growth is slowing, the launch of the self-developed Xuanjie O1 chip may further support Xiaomi's high-end strategy.

In terms of AIoT business, Goldman Sachs expects AIoT revenue to grow by about 50% year-on-year, with major appliances and tablets becoming important growth points for the AIoT business. It is estimated that the delivery volume of SU7 (including SU7 Ultra) will be about 320,000 units by 2025, and YU7 will be about 85,000 units.

Goldman Sachs maintains a "Buy" rating on Xiaomi, raising the target price to HKD 62. As of the time of publication, Xiaomi's stock price is HKD 51.95, indicating a potential upside of about 21.6% to the target price.

Smartphone Business Steadily Increases Market Share

On the evening of May 17th, during the live broadcast of Xiaomi's 15th anniversary strategic new product preview, Xiaomi Group President Lu Weibing revealed, "The 'Xuanjie O1' chip is a key milestone in Xiaomi's 10-year chip-making journey and is highly anticipated; several products equipped with Xiaomi's self-developed 'Xuanjie O1' chip will be launched, not just smartphones."

Lei Jun stated that only by making high-end flagship SoCs can we truly master advanced chip technology and better support our high-end strategy; the Xiaomi Xuanjie O1 adopts a second-generation 3nm process technology, striving to rank among the top-tier flagship experiences Goldman Sachs' research report indicates that Xiaomi's expected smartphone shipments for 2025 (170 million units) are below market consensus (181 million units), but it is optimistic about Xiaomi's continued market share gains in China from brands like Apple and Honor. Goldman Sachs' data shows:

• In the first quarter of 2025, the global smartphone market is expected to grow by 1% year-on-year, with Xiaomi's global market share reaching 14%
• In the 52 weeks ending May 11, Xiaomi achieved year-on-year share growth in 47 weeks in the Chinese market, outperforming competitors like OPPO, Apple, and Honor.

Goldman Sachs believes that the launch of the self-developed Xuanjie O1 chip may further support Xiaomi's high-end strategy, similar to the market performance of Apple's Mac after the introduction of its self-developed chips (since the release of self-developed chips in November 2020, Mac's global PC market share has increased by an average of about 2 percentage points to 9%).

Industry insiders also claim that with the release of Xiaomi's self-developed smartphone chips, Xiaomi will become the fourth global and second domestic smartphone brand with core self-developed chips, following Apple, Samsung, and Huawei. A brokerage analyst commented that the release of the "Xuanjie O1" marks a significant breakthrough in Xiaomi's chip technology autonomy.

Rapid Growth of AIoT Business

Goldman Sachs stated that Xiaomi's AIoT business performed impressively, with first-quarter revenue growing approximately 50% year-on-year, far exceeding the industry average:

• Major appliances: Domestic sales of air conditioners, washing machines, and refrigerators increased year-on-year by 103%, 184%, and 145%, respectively; sales of televisions and water purifiers increased year-on-year by 7% and 78%, respectively.
• Tablets: Global shipments increased year-on-year by 57% to 3.1 million units, ranking third globally and in China.

Goldman Sachs expects that major appliances and tablets, as the two most important AIoT segments, will contribute approximately 40% of AIoT business sales and 50% of gross profit by 2027, up from 30%/35% levels in 2024.

Xiaomi's electric vehicle factory's second phase passed government acceptance in mid-April and was delivered to Xiaomi last week, indicating that trial production will soon begin. Meanwhile, early signs of the third phase project are also emerging. Goldman Sachs estimates:

• SU7 (including SU7 Ultra) deliveries will reach approximately 320,000/335,000 units in 2025/26.
• YU7 is expected to have a delivery volume of about 85,000/360,000 units, equivalent to 2.3 times the sales of Tesla Model Y compared to Model 3 in China.

Accelerating AI Ecosystem Construction

Notably, Xiaomi also launched its first open-source inference-based large language model MiMo on April 30:

• MiMo-7B, despite having a smaller parameter count, can be applied to high-end smartphones and has outperformed OpenAI's o1-mini and Alibaba's QwQ-32B-Preview in public mathematical reasoning and coding competition evaluations
• Xiaomi's native AI assistant "Super Xiao Ai" has reached 82 million monthly active users, becoming the fifth-ranked product among AI native applications in China.

Goldman Sachs believes that with over 700 million active smartphone installations and more than 900 million connected AIoT devices, Xiaomi is building the world's largest AIoT ecosystem, with the potential to create a ubiquitous consumer-oriented physical intelligent ecosystem.

Goldman Sachs maintains its revenue forecasts for Xiaomi for 2025-2027 largely unchanged, but raises its adjusted net profit forecasts for the same period by 3-6% to reflect stronger IoT sales and gross profit outlook:

• Q1 2025 revenue is expected to grow 45% year-on-year to CNY 109.5 billion
• Adjusted net profit is expected to grow 70% year-on-year to CNY 9.4 billion
• Target price raised from HKD 59 to HKD 62, based on: 1) Xiaomi's core business at 23 times 2026 EV/NOPAT; 2) DCF valuation of Xiaomi's electric vehicle business at USD 74 billion; 3) 10% holding company discount

Four Positive Catalysts to Support Stock Price Recovery

In a research report on the 13th, Deutsche Bank believes that there will be four positive catalysts for Xiaomi in the next two months:

First is the Q1 earnings report. The report expects Xiaomi's Q1 2025 sales to grow 9% year-on-year, reaching 75,869 units, with the gross margin of "smart electric vehicles and other new businesses" expected to increase to 22% quarter-on-quarter.

Therefore, Deutsche Bank expects Xiaomi's electric vehicle business net loss to decrease by 87% year-on-year and 57% quarter-on-quarter, approximately CNY 300 million; total revenue for Q1 is expected to remain flat at approximately CNY 109 billion, with a gross profit of CNY 23 billion (up 3% quarter-on-quarter); adjusted net profit for Q1 is expected to be CNY 10 billion (up 54% year-on-year and 20% quarter-on-quarter).

Second is the release of the "Xring" chip.

Third is the Investor Day event. Public information shows that Xiaomi plans to hold its "2025 Investor Day" meeting on June 3, followed by a visit to the smart electric vehicle factory in Beijing from June 4 to 5.

Fourth is the release of the "YU7" SUV. The report predicts that the "YU7" SUV monthly sales will reach approximately 30,000 units.