HTSC expects Xiaomi to earn 63% more last quarter, estimates that the automotive business is likely to turn profitable

HTSC published a research report indicating that Xiaomi Corporation (01810.HK) is expected to see its revenue in the third quarter of 2025 grow by 23% year-on-year to RMB 113.4 billion, driven by its automotive business. The Non-GAAP net profit attributable to the parent company is expected to increase by 63% year-on-year to RMB 10.17 billion.

Among them, HTSC expects the automotive business to potentially turn profitable in the third quarter. In the context of rising storage prices, the mobile phone business adheres to a high-end strategy, partially offsetting adverse industry impacts, and is expected to maintain a gross margin level of around 11% in the second half of the year; in terms of the Internet of Things (IoT) business, although the reduction of national subsidies affects revenue growth, there are no promotional events in the third quarter, and it is expected that the company's IoT gross margin will continue to remain strong; the Internet business continues to maintain stability.

HTSC expects the group to ship approximately 109,000 Xiaomi vehicles in the third quarter of 2025, generating revenue of RMB 28.6 billion. As delivery volumes ramp up, the gross margin is expected to remain at a high level of over 26%. The firm believes that as the company's production capacity gradually increases, the automotive business may achieve financial profitability for the first time in the third quarter of 2025. Xiaomi's delivery volume in September has exceeded 40,000 per month, and with continuous capacity improvements, the outlook for profit levels continues to improve. However, it is expected that Xiaomi's mobile phone revenue may decline slightly by 1%.

Considering that a significant recovery in global smartphone demand will take time, HTSC has respectively lowered the group's revenue forecasts for 2025 to 2027 by 0.7%, 0.1%, and 0.1%; and has also lowered the Non-GAAP net profit forecasts by 0.5%, 0.9%, and 2.9% to RMB 44.1 billion, RMB 52.17 billion, and RMB 65.18 billion.

HTSC also considers the value of Xiaomi's IoT business and its ecological value in the AI era, maintaining a target price of HKD 65.4 based on the SOTP valuation method, which corresponds to a price-to-earnings ratio of 30.08 times for 2026; maintaining a "Buy" rating