Daiwa downgraded Xiaomi's target price to 55 yuan, memory costs drag down smartphone profitability

Daiwa's research report pointed out that Xiaomi (01810.HK) exceeded market expectations in the third quarter of this year due to other income, but concerns about rising memory costs have dragged down smartphone profitability. Additionally, the impact of national subsidies on the Internet of Things (IoT) business was greater than expected, leading Daiwa to lower its profit forecasts for Xiaomi for 2026 to 2027.

Daiwa predicts that Xiaomi's smartphone gross margin will be 10% in the fourth quarter of this year and in 2026; at the same time, it has lowered the shipment forecast for 2026 to 169 million units. Daiwa indicated that for Xiaomi, the IoT business is positioned as a profit contributor, but considering the reduction in national subsidies that led to a 15.7% year-on-year decline in Xiaomi's smart home appliance revenue in the third quarter of this year, Daiwa further lowered its growth expectations for Xiaomi's IoT sales in China for 2025 to 2026. It also believes that since the profit margins for overseas IoT are higher than those in China, the rapid growth of overseas business will benefit future overall gross margins.

Based on the downward adjustment of assumptions for smartphone and IoT revenue, Daiwa has lowered its revenue forecast for Xiaomi for 2026 to 2027 by 3% to 4% and its earnings per share forecast by 11%; it reiterated a "Buy" rating and lowered the 12-month target price from HKD 68 to HKD 55