JP Morgan lowers Xiaomi's target price to 38 yuan, expects smartphone gross margin recovery will still take time

JP Morgan's research report indicates that Xiaomi (01810.HK) has underperformed the Hang Seng Index by nearly 40% over the past six months due to market concerns about smartphone profit compression, weak growth in demand for smartphones and the Internet of Things this year, as well as uncertainties in electric vehicle production capacity and recent doubts about demand for electric vehicles in China. The bank stated that although Xiaomi's valuation has been adjusted downwards, the current predicament has not been fully resolved, as smartphone supply chain data continues to deteriorate, while the delivery wait times for electric vehicles rapidly shortened in January, indicating that potential demand is weaker than expected.

The bank expects smartphone gross margins to bottom out in the second to third quarter of this year, falling to around 8% to 9%, but to recover to low to mid-double-digit percentage levels. As for the electric vehicle product cycle, it is expected to accelerate again in the second half of this year, when the YU9 range-extended electric vehicle may be launched, but due to delays in the approval of the second factory, production may be limited.

The bank has lowered its core earnings estimates for Xiaomi for 2026 and 2027 by 8% and 7%, respectively, and has reduced electric vehicle profit margins by 150 to 200 basis points; the target price has been lowered from HKD 45 to HKD 38, maintaining a "Neutral" rating