Investment Rating - The report rates Xiaomi shares as "Buy" with a target price of HK$73.00, indicating an expected return of 28.3% from the current price of HK$56.90 [5][32]. Core Insights - Xiaomi's recent product launch event showcased the YU7 electric vehicle (EV) with prices starting at Rmb253,500, which is nearly 4% lower than Tesla's Model Y. Initial orders for the YU7 reached 200,000 within 3 minutes and 289,000 within 60 minutes, exceeding market expectations [1][2][16]. - The company also introduced AI glasses priced at Rmb1,999, powered by Qualcomm's Snapdragon AR1 chip, and a range of new wearables and IoT products, indicating a strong push into the smart device market [3][11]. - The earnings forecast shows significant growth, with net profit expected to rise from Rmb19.3 billion in 2023 to Rmb77.5 billion by 2027, reflecting a robust growth trajectory [4]. Summary by Sections Product Launch - Xiaomi launched the YU7 EV with three models priced at Rmb253,500, Rmb279,900, and Rmb329,900. The basic model is Rmb10,000 cheaper than Tesla's Model Y. The company is offering Rmb55,000 in freebies for early orders [1][2][12]. - The AI glasses feature a 12MP camera, five microphones, and a battery life of 8.6 hours, with an estimated demand of around 300,000 units [3]. - A variety of new wearables and IoT products were introduced, including the Xiaomi Watch S4 and Xiaomi Buds Pro, which are expected to contribute significantly to revenue [11]. Financial Performance - The earnings summary indicates a projected increase in diluted EPS from Rmb0.763 in 2023 to Rmb2.978 in 2027, with a corresponding decrease in P/E ratio from 68.2x to 17.5x, suggesting improved valuation over time [4]. - The report highlights a positive outlook for the smartphone business and gross margin due to subsidy-driven demand in China and normalized component costs [32]. Valuation - The valuation of Xiaomi shares is based on a sum-of-the-parts (SOTP) approach, with a target set at 25.5x for core smartphone, IoT, and internet services business earnings, and 1.5x for smart EV sales, reflecting a favorable growth outlook [33].

Core Viewpoint - Xiaomi reported record-breaking Q1 2025 earnings with adjusted net profit reaching 10.676 billion RMB, a year-on-year increase of 64% and a quarter-on-quarter increase of 28% [1] Financial Performance - Xiaomi's Q1 revenue from electric vehicle (EV) business was 18.6 billion RMB, a quarter-on-quarter increase of 12%, slightly below expectations by 2% [3] - The gross margin for the EV business reached 23.2%, up 2.7 percentage points quarter-on-quarter, indicating improved profitability [3] - Overall gross margin for Xiaomi was 22.8%, a year-on-year increase of 0.5 percentage points and a quarter-on-quarter increase of 2.2 percentage points, marking a historical high [4] - Operating expenses were 13.9%, lower than Morgan Stanley's expectation of 14.5%, reflecting cost synergy [4] - Gross profit was 25.406 billion RMB, exceeding Morgan Stanley's expectations by 10% due to revenue growth and margin improvement [4] - Operating profit was 9.964 billion RMB, surpassing expectations by 33%, demonstrating effective cost control [4] Key Business Segments - Smartphone business generated revenue of 50.6 billion RMB, a year-on-year increase of 9%, exceeding Morgan Stanley's expectations by 3% [6] - AIoT business revenue reached 32.3 billion RMB, a significant year-on-year increase of 59%, surpassing expectations by 8% [6] - Internet services revenue was 9.1 billion RMB, a year-on-year increase of 13%, slightly below expectations by 1% [6] - Internet services revenue in mainland China reached a historical high of 6.4 billion RMB, with a year-on-year growth of 14.8% [6] Future Catalysts - Key upcoming events include Xiaomi's Investor Day on June 3, 2025, and the GMV data for the 618 shopping festival expected to show growth compared to last year [5] - The launch of the YU7 electric vehicle in July 2025 is anticipated to be a significant catalyst for stock price increase, with expectations of higher average selling prices and improved margins [2][3] - The performance of the smartphone and AIoT businesses during the 618 shopping festival will also be monitored, but their importance is considered less than that of the YU7 launch [2][3]