CICC: Maintains Xiaomi Corporation-W outperform rating, lowers target price to HKD 59.5

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that considering the cost pressure brought by rising storage prices, it has lowered the adjusted net profit forecast for Xiaomi Corporation (01810) for 2025/2026 by 5.2%/3.6% to RMB 43.757 billion/RMB 64.016 billion. The current stock price corresponds to an adjusted net profit price-to-earnings ratio of 25.0 times/16.9 times for 2025/2026. The rating is maintained as outperforming the industry, and due to adjustments in profit forecasts and a downward shift in industry valuation, the target price is lowered by 15.0% to HKD 59.5 (SOTP valuation method), corresponding to an adjusted net profit price-to-earnings ratio of 35.3 times/24.1 times for 2025/2026, with an upside potential of 29.6%. CICC's main points are as follows: Forecasting a 68.88% year-on-year growth in adjusted net profit for 3Q25 The firm expects a 21.46% year-on-year increase in revenue for 3Q25 to RMB 112.357 billion, with adjusted net profit expected to grow 68.88% year-on-year to RMB 10.557 billion (with automotive and innovative businesses expected to achieve profitability for the first time). 3Q25 smartphone shipments remain in the global top three, with strong sales of Xiaomi 17 driving the steady advancement of the high-end strategy According to IDC, Xiaomi's global smartphone shipments in 3Q25 increased by 1.8% year-on-year to 43.5 million units, with the Chinese market slightly declining by 1.7% year-on-year to 10 million units, primarily due to the reduction of "national subsidies." The firm expects an increase in overseas market share may lead to a slight decline in ASP to RMB 1,065. Overall, it is estimated that smartphone revenue in 3Q25 will decrease by 3.49% year-on-year to RMB 45.795 billion. Considering the rise in storage prices, the gross margin for smartphones is expected to decline by 0.4 percentage points to 11.1%. Additionally, with the launch of the Xiaomi 17 series at the end of September, the company stated that the initial sales performance far exceeded expectations, and the firm anticipates strong performance from the high-end models ProMax and Pro. IoT revenue remains stable with an increase, and gross margin improves quarter-on-quarter The firm expects IoT revenue in 3Q25 to grow by 5% year-on-year to RMB 27.407 billion, with gross margin increasing by 2.7 percentage points year-on-year and 1.0 percentage point quarter-on-quarter to 23.5%, primarily due to an increase in the proportion of high-margin major appliances. In terms of internet services, the firm expects internet service revenue in 3Q25 to grow by 9.0% year-on-year to RMB 9.225 billion; the gross margin is 75.0%, maintaining a healthy overall level. Automobile delivery volume continues to rise, expected to achieve first quarterly profit in the automotive business The firm expects 3Q25 automobile deliveries to reach 109,000 units, corresponding to revenue of RMB 29.430 billion; considering the increase in YU 7 deliveries, the ASP is expected to continue to rise quarter-on-quarter. Due to the decrease in the proportion of SU 7 Ultra, the gross margin is expected to decline slightly by 1.4 percentage points to 25.0%. The firm anticipates that with the increase in automobile delivery volume, the automotive business will achieve its first profit, with a quarterly profit of RMB 707 million. Looking ahead to 2026, with the release of production capacity and subsequent model launches, the firm is optimistic about the continued growth in automobile delivery volume and accelerated profit release. Additionally, the firm is optimistic about the long-term value of Xiaomi's "human-vehicle-home" full ecosystem model. Risk Warning: Macroeconomic factors may impact the demand for smartphones and IoT products, and sales of smart vehicles may fall short of expectations