CICC: Maintains outperform rating for Xiaomi Corporation-W with a target price of HKD 70.0

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that considering the impressive gross margins of Xiaomi Corporation-W (01810) in IoT and automotive sectors, it has raised the adjusted net profit forecasts for 2025/2026 by 19.9%/3.4% to CNY 48.19 billion/CNY 56.599 billion. The current stock price corresponds to a price-to-earnings ratio of 25.8x/21.7x for the adjusted net profit in 2025/2026. The rating is maintained as outperforming the industry, and taking into account the adjustments in profit forecasts and the downward shift in industry valuation, the target price remains at HKD 70.0 (SOTP valuation method), corresponding to a price-to-earnings ratio of 35.0x/29.4x for the adjusted net profit in 2025/2026, with an upside potential of 35.8%.

CICC's main points are as follows:

1Q25 performance exceeds expectations

The company announced its 1Q25 performance: revenue of CNY 111.293 billion, a year-on-year increase of 47.4%, which is 1.8% higher than the firm's expectations; adjusted net profit of CNY 10.676 billion (including a loss of CNY 500 million from automotive and innovative businesses), a year-on-year increase of 64.5%, which is 7.8% higher than the firm's expectations, mainly due to the revenue from IoT business and the gross margins of IoT and automotive businesses exceeding expectations.

1Q25 regains the top spot in China's smartphone market, with stable gross margin growth

In 1Q25, Xiaomi's smartphone shipments increased by 3.0% year-on-year to 41.8 million units, maintaining the third position globally; the market share in China increased by 4.7 percentage points year-on-year to 18.8%, regaining the top position, which the firm attributes mainly to the steady growth of high-end smartphones and government subsidies. Driven by the increased share in the high-priced Chinese market, the average selling price (ASP) of smartphones in 1Q25 rose by 5.8% year-on-year to CNY 1,210.6. With both smartphone shipments and ASP increasing, smartphone revenue in 1Q25 grew by 8.9% year-on-year to CNY 50.612 billion. Additionally, the smartphone gross margin in 1Q25 increased by 0.4 percentage points quarter-on-quarter to 12.4%, mainly due to the decline in raw material prices combined with product structure optimization.

Smart home appliances continue to drive IoT revenue and gross margins to new highs, with steady growth in internet business

In 1Q25, the company's IoT revenue increased by 58.7% year-on-year to CNY 32.339 billion, with smart home appliances/wearables/tablets growing by 113.8%/56.5%/72.7% year-on-year, which the firm attributes mainly to the company's continuous market share improvement through high-quality products in these categories, along with support from government subsidies. With the increased share of high-margin categories such as home appliances and wearables, the IoT gross margin in 1Q25 significantly increased by 5.3 percentage points year-on-year. Looking ahead to the second quarter, driven by promotions such as "618," the firm expects the company's IoT business to continue achieving rapid revenue growth, and is optimistic about the company's long-term market share expansion in categories like home appliances. In terms of internet business, revenue in 1Q25 grew by 12.8% year-on-year to CNY 9.076 billion, with gross margin increasing by 2.7 percentage points year-on-year to 76.9%.

Smart automotive gross margins continue to grow quarter-on-quarter, with attention on the official launch of YU7

In 1Q25, Xiaomi's automotive revenue reached CNY 18.580 billion (corresponding to 75,900 units delivered), with gross margin increasing by 2.7 percentage points quarter-on-quarter to 23.2% following the improvement in SU7 delivery capabilities At the press conference on May 22, the company launched its first SUV, YU7, which will officially hit the market in July. Considering the launch of YU7 and the subsequent ramp-up in production capacity, the firm is optimistic about the continued rapid growth in sales of XPeng vehicles; in the long term, it is recommended to pay attention to the important ecological value and terminal hardware entry position brought by Xiaomi's "full ecosystem of people, vehicles, and homes" strategy.

Risk Warning: The global macroeconomic impact affects the demand for smartphones and IoT products, and sales of smart vehicles may fall short of expectations