Introduction: A High-Growth Tech Giant in Focus

Xiaomi Corporation, a global leader in communication equipment and smart devices, continues to impress with its robust growth and strategic innovations. In this analysis by UOB Kay Hian, the company’s financial performance across its core segments—smartphones, IoT (Internet of Things) products, internet services, and electric vehicles (EVs)—is examined. With a “BUY” recommendation maintained, the report forecasts a promising future for Xiaomi, backed by solid fundamentals and strategic initiatives.

4Q24 Earnings Preview: Expecting a Strong Outperformance

As Xiaomi prepares to announce its 4Q24 earnings, expectations are high. The adjusted net profit is projected to reach RMB 6.7 billion, exceeding Bloomberg consensus estimates by 12%. The anticipated outperformance is attributed to stellar growth in the smartphone and IoT segments, supported by favorable domestic policies and an improved product mix. UOB Kay Hian raises Xiaomi’s target price to HK\$52.40, reflecting a 16% upside from the current share price of HK\$45.15.

Smartphone Business: The Backbone of Xiaomi’s Revenue

Xiaomi’s smartphone segment remains its largest revenue driver. According to IDC, the company’s smartphone shipments grew 4.8% year-over-year (YoY) in 4Q24, capturing a 12.9% market share. Segment revenue is expected to hit RMB 49.4 billion, a 10.9% YoY growth, with an average selling price (ASP) increase of 6.8% YoY and 5.0% quarter-over-quarter (QoQ). Margins in this segment are forecasted to climb 1.7 percentage points (ppt) QoQ to 13.4%, signaling robust profitability.

IoT and Lifestyle Products: A Steady Growth Engine

The IoT segment continues to benefit from China’s government subsidy programs, particularly in large appliances, tablets, and wearables. Revenue for this segment is projected at RMB 28.9 billion for 4Q24, marking a 42.0% YoY and 10.7% QoQ increase. Margins are also expected to expand significantly, rising by 7.5 ppt YoY and 0.7 ppt QoQ due to a better product mix that emphasizes higher-end offerings.

Internet Services: A Stable Contributor

Xiaomi’s internet services business is projected to deliver steady growth, with revenue increasing by 13.0% YoY and 5.2% QoQ to RMB 8.9 billion in 4Q24. Margins are forecasted to recover by 2.1% YoY and 0.4% QoQ, reaching an impressive 77.8%. This growth is primarily driven by a rising contribution from the domestic advertising market.

Electric Vehicles (EV): A Rising Star

Xiaomi’s EV business is rapidly gaining traction. The company achieved 135,000 SU7 deliveries in 2024, with over 75,000 units delivered in 4Q24 alone. This translates to 4Q24 revenue of RMB 16.4 billion, a 69.4% QoQ growth. Margins in this segment are projected to expand by 2.4 ppt QoQ to 19.5%. Robust order momentum, with lead times extending to four months, further underscores the segment’s growth potential. Looking ahead, the launch of the YU7 model in mid-2025 is expected to drive additional growth.

Upward Revisions to Financial Forecasts

UOB Kay Hian has revised its financial forecasts for Xiaomi, raising its revenue and margin assumptions across the smartphone, IoT, and EV segments for 2024-2026. Key updates include:

• Smartphone Revenue: Revised upwards by 3.1%/10.0%/12.2% for 2024-26.
• IoT Revenue: Increased by 8.1%/8.9%/4.0% for the same period.
• EV Sales: A significant upward revision, with forecasts raised by 3.8%/70.9%/83.3% for 2024-26.
• Net Profit: Adjusted upwards by 5.1%/17.4%/22.0% for 2024-26, reflecting higher revenue and improved margins.

Valuation and Recommendations

Maintaining a “BUY” recommendation, UOB Kay Hian has raised Xiaomi’s target price to HK\$52.40. The valuation is based on a sum-of-the-parts (SOTP) analysis, comprising:

• Core Business: Valued at HK\$37.20, reflecting a 25.4x 2025 forward price-to-earnings (PE) ratio, which is 0.5 standard deviations above its five-year historical average.
• EV Business: Valued at HK\$15.20, using a discounted cash flow (DCF) approach with a weighted average cost of capital (WACC) of 10.4%.

Key Financial Metrics

Xiaomi’s financial performance highlights its growth trajectory and operational efficiency:

• 2024-2026 Revenue: Forecasted to grow from RMB 361.1 billion in 2024 to RMB 504.8 billion in 2026.
• Net Profit (Adjusted): Expected to rise from RMB 25.7 billion in 2024 to RMB 42.8 billion in 2026.
• Gross Margins: Predicted to improve from 21.4% in 2024 to 21.9% in 2026.
• Net Margins: Projected to increase from 5.4% in 2024 to 8.5% in 2026.
• Return on Equity (ROE): Estimated to grow from 14.8% in 2024 to 17.9% in 2026.