HTSC·2025-08-20 06:42Investment Rating - The report maintains a "Buy" rating for Xiaomi Group with a target price of HKD 65.4, down from the previous HKD 67.8 [1][4][14]. Core Insights - Xiaomi's total revenue for Q2 2025 reached RMB 116 billion, representing a year-on-year growth of 30.5% and a quarter-on-quarter increase of 4.2%. Adjusted net profit grew by 75.4% to RMB 10.8 billion [1][4]. - The overall gross margin for the group was 22.5%, up 1.8 percentage points year-on-year but down 0.3 percentage points from Q1 2025 [1]. - The automotive business showed strong performance with a gross margin of 26.4%, benefiting from scale effects and a higher proportion of high-end model deliveries [2][3]. Summary by Sections Automotive Business - Q2 2025 saw a record delivery of 81,302 vehicles, with revenue increasing by 14% quarter-on-quarter to RMB 20.6 billion. The gross margin for the automotive segment improved significantly from 15.4% to 26.4% year-on-year [2]. - The company is optimistic about the automotive business's profitability, especially with its high-end strategy, and anticipates potential profitability in upcoming quarters [2][3]. Smartphone/IoT/Internet Business - The smartphone segment faced challenges, with revenue declining by 2.1% year-on-year to RMB 45.5 billion and a gross margin contraction to 11.5% [3]. - IoT revenue grew by 44.7% year-on-year to RMB 38.7 billion, driven by high-value smart home appliances, maintaining a strong gross margin of 22.5% [3]. - Internet services continued to show stable growth, with a 10.1% year-on-year revenue increase to RMB 9.1 billion and a high gross margin of 75.4% [3]. Profit Forecast and Valuation - Due to weak global smartphone demand, revenue forecasts for 2025-2027 were adjusted downwards by 2.2%, 0.5%, and 0.2%, respectively. However, net profit forecasts were raised by 9.5%, 4.3%, and 7.8% for the same period [4]. - The target price of HKD 65.4 corresponds to a 30x PE ratio for 2026, reflecting the company's strong IoT and AI ecosystem value [4][14]. Financial Metrics - The report projects a revenue increase to RMB 479.9 billion in 2025, with a net profit of RMB 44.3 billion, representing a 62.2% year-on-year growth [9][12]. - The gross margin is expected to stabilize around 22.7% in 2026, with a projected net profit margin of 9.1% [12][13].