XIAOMI(1810.HK)：3Q25ABOVE; NOT IMMUNE TO MEMORY COST HIKE AND EV PURCHASE TAX SUBSIDIES IN THE NEAR TERM

Core Viewpoint - Xiaomi's 3Q revenue and adjusted net profit growth of 22% and 81% YoY, respectively, were slightly above expectations, driven by the fast-growing smart EV business, resilient internet segment, and improved operating efficiency, despite weaker smartphone sales [1][2] Financial Performance - 3Q25 revenue growth of 22% YoY was in line with expectations, supported by smart EV and internet services growth [2] - Smartphone revenue declined by 3% YoY due to flat shipments and a decrease in average selling price (ASP) [2] - Smart EV revenue surged by 198%, achieving operating income breakeven for the first time, attributed to strong EV deliveries and ASP increases [2] - IoT revenue increased by 6% YoY, driven by overseas markets, although this was partially offset by weaker sales in large home appliances in China [2] - Internet revenue grew by 11% YoY, supported by solid advertising growth [2] Outlook - Management is conservative regarding margin headwinds in the near term due to memory cost hikes and EV tax subsidies, but strategic objectives for smartphone and EV market share gains, new retail networks, and overseas expansion remain on track [3] - GPM pressure for smartphones is expected to persist into 4Q25 and 2026, despite securing supply agreements with memory suppliers [3] - For smart EVs, a decline in GPM is anticipated in 2026 due to competition and EV purchase tax subsidies [3] - IoT is expected to benefit from rapid overseas expansion and the development of Xiaomi's OS and local LLM as a foundation for an edge AI ecosystem [3] Strategic Positioning - Xiaomi's strong ecosystem and market expansion strategies are expected to help navigate headwinds, leading to a maintained BUY rating [4] - FY26-27E adjusted EPS has been trimmed by 9% each to reflect 3Q results, rising memory costs, and competition [4] - The new SOTP-based target price of HK$ 55.31 implies a 26.3x FY26E P/E ratio [4] - Upcoming catalysts include product launches, updates on memory pricing, and ramp-up of EV capacity [4]