UOB Kay Hian
Date of Report: August 20, 2025
Xiaomi Delivers Record Profits and Eyes European EV Expansion: Comprehensive Q2 2025 Financial Analysis and Outlook

Executive Summary

Xiaomi Corporation (1810 HK) has delivered a stellar second quarter in 2025, achieving record net profits and showcasing robust growth across its IoT, internet services, and electric vehicle (EV) segments. With a maintained BUY rating and a 32.1% upside to a target price of HK\$69.20, Xiaomi’s diversified business model and aggressive R&D investments position it as a formidable player in both consumer electronics and the burgeoning EV market.

Company Snapshot: Xiaomi Corporation

• Share Price: HK\$52.40
• Target Price: HK\$69.20 (Upside: 32.1%)
• Market Cap: HK\$1,349,219 million (US\$198,415 million)
• Sector: Communications Equipment
• Bloomberg Ticker: 1810 HK
• Major Shareholders: Smart Mobile Holdings Ltd (8.53%), Lin Bin (2.09%)
• 52-week range: HK\$61.45 / HK\$17.10

Q2 2025 Results: Xiaomi Achieves New Heights

Xiaomi posted a net profit of RMB 10.8 billion in Q2 2025, significantly surpassing both internal and market expectations. This performance was powered by strong IoT sales, robust EV margins, and favorable changes in the fair value of financial instruments. The company’s revenue reached RMB 115,956 million, up 30.5% year-on-year (YoY) and 4.2% quarter-on-quarter (QoQ), with the IoT & Lifestyle segment emerging as a key growth engine.

Segment Analysis: Key Drivers and Challenges

Smartphones: Margin Pressures Amid Rising Memory Costs

– Smartphone revenues declined 2.1% YoY and 10.1% QoQ to RMB 45,520 million. – Gross margin for smartphones dropped to 11.5%, hurt primarily by higher memory costs, especially impacting low- to mid-end models. – Margins are expected to remain under pressure in Q3 2025, with some recovery anticipated in Q4 on the back of a shift towards higher-end models, notably the upcoming Mi17 series.

IoT & Lifestyle Products: Record-Breaking Growth and Expanding Footprint

– IoT & Lifestyle products saw revenues soar 44.7% YoY and 19.7% QoQ, reaching RMB 38,712 million. – Key contributors included strong performance in home appliances, tablets, and wearables. Air conditioner sales were particularly robust, surpassing the combined value of washing machines and refrigerators. – Xiaomi expanded its offline presence by opening around 200 stores in H1 2025, with an ambitious target to launch 1,000 stores per year from 2026. – IoT margin dipped QoQ due to the 618 sales festival but is expected to stay above 20% during promotional periods and winter season.

EV Segment: Rapid Growth and Plans for European Expansion

– EV revenues surged to RMB 21,263 million in Q2 2025, a 233.9% YoY increase. – Gross margin improved to 26.4%, beating forecasts, with deliveries of the SU7 reaching 81,302 units. – The YU7 model began deliveries in July 2025, set to further boost average selling price (ASP) and margins in Q3. – Xiaomi confirmed plans to enter the European EV market in 2027, leveraging its strong brand awareness (over 95% in Europe, and over 98% in Spain). The company’s left-hand-drive models make European expansion viable without significant adaptation costs.

Internet Services: Consistent Performance, Margin Slightly Below Expectations

– Internet services revenue rose 10.1% YoY to RMB 9,098 million. – The segment’s margin stood at 75.4%, slightly missing estimates but remaining industry-leading.

Financial Highlights and Forecasts

Key observations:

• Net profit margin is projected to improve to 10.1% by 2027F.
• ROE will remain robust, above 19% through 2027F.
• No dividend payout is forecasted through 2027.

Strategic Initiatives and R&D Investment

• R&D spending increased 40% YoY, focusing on core technologies such as chips, AI (including Xiaomi’s MiMo LLM), and operating systems across all business segments.
• The R&D workforce now comprises 46.2% of total employees, marking a record high and demonstrating Xiaomi’s commitment to innovation and long-term competitiveness.
• Quarterly R&D investments are expected to continue rising in support of the company’s ambitious multi-segment growth.

Valuation and Recommendation

• BUY rating maintained, with a target price of HK\$69.20.
• The target price is based on a sum-of-the-parts approach:
  • Core business valued at HK\$49.20 (25x 2026F PE, 0.5SD above five-year historical average).
  • EV business valued at HK\$20.00, using a 10-year DCF and a WACC of 9.6% (implying 4.4x 2026F P/S).
• Key risks include margin pressures in smartphones and IoT, offset by increasing revenue and margin contributions from the EV segment.

Key Estimate Revisions

Cash Flow, Balance Sheet, and Key Metrics

Conclusion: Xiaomi’s Path Forward

Xiaomi’s Q2 2025 results underscore its strong momentum across multiple business lines, especially in IoT and EVs. The company’s ongoing R&D and expansion initiatives — notably its move into Europe’s EV market — position it for continued growth. While margin pressures in smartphones and IoT are likely to persist in the short term, Xiaomi’s diversification and innovative drive support its long-term value proposition for investors.
With a robust balance sheet, increasing cash reserves, and strategic investments in technology, Xiaomi stands as a compelling pick in tech and EV sectors, reaffirmed by UOB Kay Hian’s maintained BUY rating and attractive upside potential.