XIAOMI CORP(1810.HK)：WITH CONCERNS OVER SMARTPHONE AND IOT PRICED IN SMART EV AND AI BUSINESS REMAINS FOCUS OF DEBATE

Core Viewpoint - The smartphone sector is facing challenges in 2026 due to a super memory cycle affecting DRAM/NAND prices, while the smart EV and AI business remains a focal point for debate. Despite negative sentiment, if Xiaomi's new products can replicate past successes, the stock is expected to recover [1]. Group 1: Smart EV Business - Xiaomi is anticipated to maintain a product upcycle in its smart EV business, with solid traction expected from new models like the upgraded SU7 facelift, YU9-EREV, and YU7 GT variant [2]. - Concerns that Xiaomi's smart EV business in 2026 may underperform like Li Auto's this year are viewed as overly pessimistic, as Li Auto's issues stem from specific product weaknesses and external incidents [2]. - Sales estimates for 2026 and 2027 have been modestly revised down to 651,000 and 931,000 units, respectively, with operating profit forecasts adjusted to RMB7.7 billion and RMB14.9 billion due to lower gross margin estimates and increased R&D costs in AI [2]. Group 2: Traditional Business - Negative sentiment surrounding Xiaomi's traditional business is expected to persist as memory prices continue to rise, leading to a likely negative growth in smartphone shipments for 2026 [2]. - The phase-out of the 2025 national subsidy and uncertainty regarding the 2026 subsidy have raised concerns about Xiaomi's IoT growth [2]. - Despite the negative industry developments, Xiaomi's progress in premiumization and AI is seen as enhancing the company's risk resilience moving forward [2]. Group 3: Valuation - The valuation for Xiaomi's traditional business is set at HK$35.5 per share using a 22x 2026E P/E ratio, while the EV business is valued at HK$20.71 per share, leading to a new sum-of-the-parts target price of HK$56.21, down from HK$69.04 [4].