Introduction

In a recent report by UOB Kay Hian, Xiaomi Corporation has been highlighted as a company demonstrating impressive growth across various segments, notably in its smartphones, IoT, and electric vehicle (EV) businesses. The report provides a detailed analysis of Xiaomi’s financial performance for the third quarter of 2024, along with future market expectations and strategic recommendations. With a maintained ‘BUY’ rating and a revised target price, Xiaomi continues to be a top pick for investors.

Financial Performance Overview

Xiaomi’s third-quarter results for 2024 have shown a robust performance, with revenue significantly exceeding expectations. The company’s revenue reached RMB 92.5 billion, marking a 30.5% year-on-year increase and a 4.1% quarterly growth. This was propelled mainly by the strong performance of the EV segment, which outperformed forecasts with better sales mix and margins.

The adjusted net profit for Q3 2024 was RMB 6.3 billion, surpassing both UOB Kay Hian’s and consensus estimates. The gross profit margin stood at 20.4%, slightly lower than previous quarters due to rising component costs in the smartphone segment, yet still displaying favorable conditions compared to forecasts.

Segment Analysis

Smartphones

Xiaomi’s smartphone segment continues to show significant resilience and growth. The revenue from smartphones in Q3 2024 was RMB 47.45 billion, a 13.9% increase year-on-year. The company is benefiting from its premiumization strategy, which is evident in its expanding market share across higher-priced segments. The contribution to shipments of smartphones priced above RMB 3,000 increased by 2.0 percentage points to 22.1%, suggesting a positive shift towards premium models.

IoT and Lifestyle Products

The IoT and lifestyle products segment saw a revenue of RMB 26.1 billion, growing 26.3% year-on-year. Xiaomi’s strategic restructuring of its IoT business model has improved cost structures, enhancing product competitiveness. Notably, the Mi Pad reported a 58% year-on-year revenue growth, driven by strong sales in overseas markets. White goods also experienced a 54.9% increase in revenue, supported by robust replacement demand in the domestic market.

Internet Services

Internet services generated RMB 8.46 billion in revenue, reflecting a 9.1% year-on-year growth. The segment’s gross profit margin remained robust at 77.5%, exceeding expectations and highlighting the strength of Xiaomi’s online ecosystem.

Electric Vehicles (EV)

The EV segment emerged as a notable performer with a revenue of RMB 9.7 billion. The margin for this segment improved to 17.1%, surpassing forecasts due to an enhanced operating scale and a favorable product mix. Xiaomi has set ambitious shipment targets, expecting to deliver 130,000 units by the end of the year, up from the initial 120,000 units target. The report projects the EV business to achieve better gross and net margins from Q4 2024 onwards, with an expectation to break even at the operating level by 2027.

Earnings Revision and Risks

UOB Kay Hian has revised Xiaomi’s core net profit estimates for 2024-2026, with increases of 8.0%, 3.0%, and 2.9% respectively. The upward revisions are driven by improved assumptions in the EV business’s ASP, shipments, and margins, alongside higher internet service revenue expectations and slightly improved margins for smartphones and internet services.

While the core business net profit (excluding the EV segment) is raised by 6.7% in 2024, the 2025-2026 assumptions remain largely unchanged.

Valuation and Recommendation

Xiaomi is maintained as one of UOB Kay Hian’s top picks, with a ‘BUY’ rating and a raised target price of HK\$33.50. This valuation is primarily influenced by higher expectations for the EV business. The Sum-of-the-Parts (SOTP) valuation includes HK\$27.40 for the core business, based on a 20.7x 2025F PE, and HK\$6.10 for the EV business, derived from a 10-year Discounted Cash Flow (DCF) valuation with a Weighted Average Cost of Capital (WACC) of 10.8%.

Conclusion

Overall, Xiaomi Corporation is poised for sustained growth across its key segments, driven by strategic product launches and robust execution. With an expanding footprint in the premium smartphone market, a competitive edge in IoT and lifestyle products, and an ambitious trajectory in the EV sector, Xiaomi presents a compelling investment opportunity for those seeking exposure to innovative technology enterprises.