BOCOM International·2025-11-20 11:10Investment Rating - The report maintains a "Buy" rating for Xiaomi Group (1810 HK) with a target price of HKD 50.00, indicating a potential upside of 28.8% from the current closing price of HKD 38.82 [1][17]. Core Insights - The automotive business turned profitable in Q3 2025, while the smartphone segment's gross margin is expected to be impacted by rising storage prices [2][7]. - Revenue for Q3 2025 reached RMB 113.121 billion, a 22% year-on-year increase, while adjusted net profit was RMB 11.311 billion, up 81% year-on-year, exceeding market expectations [8][7]. - The report anticipates a decline in smartphone gross margin due to increased storage costs, projecting a smartphone gross margin of 9.4% for 2026, down from a previous estimate of 12.1% [7][9]. Financial Overview - Revenue projections for Xiaomi Group are as follows: RMB 270.97 billion in 2023, RMB 365.91 billion in 2024, RMB 466.58 billion in 2025, RMB 534.02 billion in 2026, and RMB 599.21 billion in 2027, with respective year-on-year growth rates of -3.2%, 35.0%, 27.5%, 14.5%, and 12.2% [3][18]. - Adjusted net profit is expected to grow from RMB 17.475 billion in 2023 to RMB 46.045 billion in 2027, with significant growth in 2025 projected at RMB 44.456 billion [3][18]. - The report highlights a decrease in the expected gross margin for the smartphone segment, projecting a gross margin of 22.3% for 2025, down from previous estimates [9][20]. Market Position and Valuation - The report employs a Sum-of-the-Parts (SOTP) valuation method, estimating the total valuation for Xiaomi Group at approximately RMB 1,280.046 million for 2026, based on a P/E ratio of 23 times for the smartphone and AIoT segment and a P/S ratio of 2.0 for the automotive and AI segment [10][9]. - The automotive business is projected to face increased competition and a reduction in gross margin due to a half reduction in purchase tax and rising raw material costs [7][9].