Xiaomi (1810 HK): BUY Rating Maintained, Target Price Raised to HK$69.90 – UOB Kay Hian Report

UOB Kay Hian

Wednesday, 28 May 2025

Xiaomi Corp (1810 HK): Blended Margins Soar to Historical Highs; IoT/EV Segments Propel Growth

Xiaomi Corporation, a global manufacturer of communication equipment and parts, has demonstrated robust financial performance in its recent quarterly results. This analysis delves into the key drivers behind Xiaomi’s success, focusing on its impressive margin growth and the strategic importance of its IoT and EV segments.

Investment Recommendation

• Rating: BUY (Maintained) [[1]]
• Share Price: HK\$51.55 [[1]]
• Target Price: HK\$69.90 [[1]]
• Upside: 35.6% [[1]]

Company Overview

• Description: Xiaomi Corporation manufactures communication equipment and parts, producing and selling mobile phones, smartphone software, set-top boxes, and related accessories. The company markets its products worldwide. [[1]]
• GICS Sector: Communications Equipment [[1]]
• Bloomberg Ticker: 1810 HK [[1]]
• Shares Issued (m): 24,948 [[1]]
• Market Cap (HK\$m): 1,286,090 [[1]]
• Market Cap (US\$m): 189,131 [[1]]
• 3-Mth Avg Daily Turnover (US\$m): 2,101.5 [[1]]

Stock Performance

• 52-Week High/Low: HK\$59.45 / HK\$15.36 [[1]]
• Price Performance (%): [[1]]
  • 1 Month: 8.1
  • 3 Months: (2.9)
  • 6 Months: 82.2
  • 1 Year: 179.6
  • Year-to-Date: 49.4

Major Shareholders (%)

• Smart Mobile Holdings Ltd: 8.56 [[1]]
• Lin Bin: 2.09 [[1]]

Key Financials

• FY25 NAV/Share (RMB): 10.18 [[1]]
• FY25 Net Cash/Share (RMB): 0.88 [[1]]

1Q25 Results: A Strong Start

Xiaomi’s 1Q25 net profit was a solid beat at Rmb10.7b, with an all-round beat for both revenue/margins across segments. [[1]] The IoT business had an outstanding quarter, with a historically high margin of 25.2% (+4.4ppt vs estimates) thanks to an improved product mix. [[1]] For the EV business, the continued increase in deliveries will help drive the segment towards profitability. [[1]] Maintain BUY and raise target price to HK\$69.90. [[1]]

Detailed 1Q25 Financials

Here’s a detailed look at Xiaomi’s 1Q25 financial performance:

Revenue Performance

Xiaomi Corp’s (Xiaomi) 1Q25 revenue arrived at Rmb111b (+47.4% yoy and +2.1% qoq), exceeding estimates by 2.3%/2.1% respectively. [[2]] This was primarily driven by better-than-expected sales for both the smartphones and IoT businesses, while revenues from the internet services and EV segments were largely in line with expectations. [[2]]

Gross Margin Analysis

The blended margin of 22.8% was 1.5ppt/1.3ppt above estimates respectively. [[2]] Notably, the IoT segment’s margin was 4.4ppt above forecast, while the EV segment’s margin was 2.2ppt above estimates. [[2]] Both the smartphones and internet services businesses also beat estimates by 0.3ppt/1.9ppt respectively. [[2]]

Adjusted Net Profit

Adjusted net profit grew 64.5% yoy and 28.4% qoq to Rmb10.7b, beating estimates of Rmb9.3b and Rmb9.1b respectively. [[2]] This was due to the better-than-expected blended margins and a lower tax rate. [[2]]

Key Financials Forecast

Stock Impact Analysis

IoT – Robust Growth Across Product Categories

Xiaomi’s IoT business grew 58.7% yoy in 1Q25. [[3]] It continued to be driven by large home appliances (shipment growth of >65% for air conditioners/refrigerators/washing machines), tablets (shipments up 56% yoy) and wearables. [[3]] The margin of 25.2% achieved this quarter is a record high for the IoT segment, underscoring Xiaomi’s continued growth in this space. [[3]] Also, Xiaomi has started to premiumise its tablet offerings with the introduction of the first Ultra model, the Mi Pad 7 Ultra equipped with XRING O1. [[3]]

The IoT segment’s margin is expected to continue expanding in the coming years with the ongoing product mix upgrade and product premiumisation. [[3]] Notably, ASP increased significantly during the quarter. [[3]] However, the IoT segment’s margins are expected to correct slightly in 2Q25 due to seasonality (including 618 sales). [[3]]

EV – A Step Closer to Profitability

Deliveries of the SU7 reached 75,869 in 1Q25. [[3]] With the YU7 expected to begin deliveries in Jul 25, Xiaomi will need to balance out the production of its two models due to capacity constraints. [[3]] The sales/production mix will be determined once order patterns have normalised after the launch. [[3]] Amid the escalating price war in the domestic EV market, Xiaomi has indicated it will not offer significant price cuts (if any at all) as they believe in the continued appeal of both its SU7 and YU7 models. [[3]]

Management noted that the rising delivery volume has contributed to efficiency improvements, which translated to better gross margins. [[3]] At the same time, Xiaomi started delivering the SU7 Ultra in Mar 25 which contributed to margin improvements in the quarter. [[3]] As margins are expected to be further enhanced when YU7 deliveries begin, coupled with the rise in overall EV deliveries, Xiaomi’s EV business is moving closer to profitability. [[3]]

Smartphones – Continued Focus on Premiumisation

In 1Q25, Xiaomi’s global smartphone ASP reached a record high of Rmb1,211, an increase of 5.8% yoy. [[3]] Notably, Xiaomi’s share of the high-end domestic smartphone market grew from 21% in 1Q24 to 25% in 1Q25, with the flagship Mi15 Ultra recording a 90% yoy growth compared with its predecessor. [[3]] In the future, Xiaomi intends to expand its market share in the >Rmb6,000 smartphone market, where it only has a 5% share. [[3]]

Xiaomi believes there may be slight variances to smartphone shipment expectations for 2025. [[3]] While the domestic market has remained robust thanks to the trade-in subsidy programme, certain markets such as Europe and India have slowed, especially for lower-end devices. [[3]] As a result, Xiaomi is expecting a 3% growth in domestic smartphone shipments, and a more modest 1-2% growth for overseas shipments. [[3]] Accordingly, the full-year shipment forecast has been revised down from 181m units to 176m units to factor in a more moderate smartphone market outlook. [[3]]

Increased R&D Allocation for AI

Management noted that of its expected Rmb30b in R&D spend for 2025, around 25% will be allocated to its AI projects. [[3]] This is following up from the Xiaomi MiMo LLM unveiled in late-Apr 25. [[3]]

Earnings Revision

2025-27 core net profit estimates have been raised by 12.8%/17.2%/15.7% respectively, driven by: a) higher revenue assumption for the internet services segment, and b) higher margin assumptions for both IoT and EV businesses, which will be offset by slightly lower shipment and margin forecasts for the smartphones business. [[3]]

Valuation and Recommendation

Maintain BUY and raise target price to HK\$69.90, based on: a) HK\$52.10 for the core business, which is based on 30.0x 2025F PE, 1SD above its five-year historical forward mean; and b) HK\$17.80 for the EV business which is based on 10-year DCF valuation based on a WACC of 9.6%. [[3]] The EV business valuation also implies 5.1x 2025F P/S. [[3]]

Key Estimates (Old vs. New)

Sum-of-the-Parts (SOTP) Valuation

Financial Statements

Profit & Loss

Balance Sheet

Cash Flow

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