Summary of Xiaomi's Q225 Preview and Key Insights Company Overview - **Company**: Xiaomi - **Industry**: Smartphone and Internet-of-Things (IoT) home-lifestyle company - **Mission**: To build high-quality products at reasonable prices, capping hardware net margin at 5% per year [14][15] Key Financial Metrics - **Q225 Smartphone Sell-Through**: 41 million units, up 0.5% YoY and 1.5% QoQ [2] - **Q225 Estimated Sell-In**: 42.4 million units, in line with sell-through due to lean channel inventory [2] - **Full Year Unit Growth Forecast**: 175 million units, slightly revised down from 176 million [2] - **Q225 Smartphone Gross Profit Margin (GPM)**: Expected to be flat QoQ at 11.6% [2] Regional Performance - **China**: Sell-through grew 8% YoY, driven by subsidies and the 618 shopping festival [2] - **Europe and Rest of World (RoW)**: Recorded declines of -1% and -4% YoY, respectively, due to competition from Samsung and market share gains in emerging markets [2] AIoT Business Insights - **Q225 AIoT Sales Forecast**: RMB 36.6 billion, up 37% YoY; 2025E forecast at RMB 140.6 billion, up 35% YoY [3] - **Margin Expectations**: Seasonal decline expected due to 618 promotions, with a forecasted 3.7 percentage points QoQ decline from Q125's peak [3] - **Challenges**: Receding subsidy impacts and intensified domestic competition may suppress margin upside [3] Electric Vehicle (EV) Segment - **Q225 EV Deliveries**: 82,000 units, up 8% QoQ [4] - **Average Selling Price (ASP)**: Expected to rise to RMB 240,000, with a margin increase of 0.7% [4] - **Future Capacity**: Second EV plant ramp-up is critical for 2H25/2026 shipment forecasts, with expectations of 398,000 and 720,000 units in 2025 and 2026, respectively [4] Valuation and Price Target - **Revised Price Target**: Lowered from HK$62.0 to HK$60.0, maintaining a Neutral rating [5] - **Earnings Forecast Adjustments**: Q225 and 2025 earnings forecasts reduced by 10.4% and 5.5%, respectively [5] - **Valuation Methodology**: Sum-of-the-parts (SOTP) approach, with smartphone, AIoT, and internet segments valued at 22.5x 2026E PE [5] Profitability and Financial Metrics - **Revenue Projections**: Expected revenues for 2025E at RMB 483.4 billion, growing to RMB 929.7 billion by 2029E [6] - **Net Earnings**: Projected net earnings for 2025E at RMB 42.0 billion, increasing to RMB 92.2 billion by 2029E [6] - **Debt Management**: Net cash position expected to improve significantly by 2029E [6] Risks and Opportunities - **Downside Risks**: Include raw material price hikes, competition in the premium smartphone market, and potential declines in IoT demand as subsidies fade [15] - **Upside Risks**: Faster-than-expected adoption of edge-AI smartphones, earlier monetization of IoT products, and higher EV shipments could drive growth [16] Market Position - **Market Capitalization**: Approximately HK$1,348 billion (US$172 billion) [7] - **Free Float**: 59% of shares [7] - **Average Daily Volume**: 151,813 shares [7] Conclusion Xiaomi is navigating a complex landscape with mixed performance across its segments. While the smartphone and AIoT businesses show growth potential, challenges from competition and market dynamics necessitate careful monitoring of margins and capacity expansions, particularly in the EV sector. The revised price target reflects a cautious outlook amid these developments.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China's macroeconomic environment and trade relations - **Key Focus**: Trade cooperation, industrial profits, consumption trends, and government policies Core Insights and Arguments 1. **Trade Cooperation**: China is actively seeking to broaden cooperation with Europe and ASEAN amid ongoing trade uncertainties with the US, which has led to a 21% year-on-year decline in overall cell phone exports in April, with smartphone shipments to the US dropping by 70% year-on-year [2][3] 2. **US Tariff Impact**: The uncertainty surrounding US tariffs is prompting companies like Apple to consider shifting production to India by the end of 2026 to mitigate tariff impacts, although recent comments from President Trump suggest potential increases in tariffs on imported iPhones [3][4] 3. **Industrial Profit Recovery**: China's industrial profits increased by 1.4% year-on-year in the January-April period, with 60% of major industrial sectors reporting profit growth. Notably, equipment manufacturing and high-tech manufacturing saw profit increases of 11.2% and 9.0%, respectively [11][13] 4. **Consumption Initiatives**: Cities in China are piloting shortened work-weeks to boost consumption, with Shanghai implementing a new action plan to enhance household income and welfare, aiming to stimulate retail sales which have seen a decline of 0.3% year-on-year in the January-April period [14][15] 5. **Government Support for Livelihoods**: Fiscal expenditure on people's livelihoods, including healthcare and education, increased significantly in the January-April period, indicating a shift in government focus towards supporting consumption and improving living standards [17] Additional Important Insights 1. **Trade Relations with the EU**: China and the EU are set to meet in early June to discuss trade relations, coinciding with the 50th anniversary of their diplomatic ties, which may lead to improved trade and investment engagement [6] 2. **Belt and Road Initiative**: China plans to increase imports from central and eastern European countries and enhance projects under the Belt and Road Initiative, reflecting a strategic pivot towards diversifying trade partnerships [6] 3. **Consumer Goods Trade-in Programs**: The expansion of consumer goods trade-in programs has positively impacted profits in household electrical appliances, with profit increases of 15-17% in the January-April period [13] 4. **Challenges in Auto Manufacturing**: Despite overall profit recovery, the auto manufacturing sector faced a 5% year-on-year decline in profits, indicating ongoing price pressures due to heightened competition [13] 5. **Shanghai's Consumption Plan**: Shanghai's new consumption plan includes measures to support childcare and elderly care, which could lead to the introduction of childcare subsidies and improved social security systems [16] This summary encapsulates the key points discussed in the conference call, highlighting the current state of the Chinese economy, trade dynamics, and government initiatives aimed at boosting consumption and industrial growth.

Investment Rating - The report maintains a "Buy" rating for Xiaomi Corp. (1810.HK) with a target price raised to HK$65 from HK$62, indicating a 26% upside potential [1][18]. Core Insights - Xiaomi's 1Q25 results exceeded expectations, with revenue growing by 47% year-over-year (yoy) to Rmb111 billion, and adjusted net profit increasing by 65% yoy to Rmb10.7 billion [1]. - Key growth drivers included AIoT and electric vehicles (EV), with AIoT revenue growing by 59% yoy, significantly outperforming the market [2][34]. - The gross profit margin (GPM) for AIoT reached a record high of 25.2%, up 5.4 percentage points yoy, making it the largest gross profit contributor for Xiaomi [3][58]. Financial Performance - Revenue from smart EVs showed a gross profit margin expansion to 23.2%, attributed to strong pricing power and lower bill of materials (BOM) costs [4]. - Smartphone revenue grew by 9% yoy to Rmb50.6 billion, with a market share increase in China to 19%, marking Xiaomi's first position in the market after 10 years [28]. - Internet services revenue increased by 13% yoy to Rmb9.1 billion, driven by a 20% growth in advertising revenue [67]. Segment Analysis - AIoT and lifestyle products contributed significantly to revenue, with smart large home appliances seeing a revenue growth of 114% yoy [42]. - Tablet shipments grew by 56% yoy, with Xiaomi achieving the No.3 market share globally and in China [47]. - Wearables revenue increased by 56.5% yoy, with Xiaomi maintaining a leading position in the global market [58]. Future Outlook - The company anticipates continued growth in AIoT, projecting a 22% compound annual growth rate (CAGR) for overseas revenue from 2024 to 2027 [61]. - Upcoming events to watch include the 6.18 shopping festival and a new product release event, which are expected to drive further consumer interest and sales [19].

Core Viewpoint - Xiaomi reported strong 1Q25 results with revenue and adjusted net income increasing by 47% and 65% YoY to RMB111 billion and RMB11 billion respectively, surpassing consensus estimates [1][2] Financial Performance - Revenue reached RMB111 billion, a 47% YoY increase, with improved gross profit margin (GPM) at 22.8%, up 2.2 percentage points QoQ, beating consensus by 2% [2] - Adjusted net income of RMB10.7 billion exceeded estimates by 10% and 18% [2] - Operating profit margin (OPM) improved by 3.6 percentage points QoQ to 9%, indicating effective operational expense leverage [2] Smart EV Business - Smart EV revenue rose by 11.5% QoQ to RMB18.6 billion, with GPM expanding 2.7 percentage points QoQ to 23.2%, driven by a favorable sales mix and improved scale effects [3] - Adjusted net loss for the EV segment decreased to RMB195 million from RMB730 million in 4Q24, reflecting better GPM and strict OPEX control [3] Smartphone Segment - Smartphone revenue reached RMB51 billion, a 9% YoY increase, supported by a 3% rise in shipments to 42 million and a 6% increase in average selling price (ASP) to RMB1,211 [4] - GPM for smartphones improved to 12.4%, with expectations for further increases due to a higher premium product mix and lower component costs [4] IoT Segment - IoT revenue and GPM continued to grow, driven by strong sales in large home appliances (up 114% YoY), tablets, and wearables, with Xiaomi aiming for a Top 3 market share in major large home appliances by 2025 [5] - Projected revenue CAGR for Xiaomi IoT is 17% from 2024 to 2027 [5] Internet Services - Revenue from internet services grew 13% YoY to RMB9.1 billion, with stable GPM at 76.9%, primarily due to strong advertising performance [6] - Expected internet services revenue to reach RMB38 billion in 2025, supported by stable monthly active user growth [6] Valuation - 2025/26E EPS estimates were slightly increased due to more optimistic IoT margin forecasts [7] - Xiaomi is positioned as a top BUY with a target price of HK$75.25, based on a sum-of-the-parts valuation combining 21x 2026E P/E for traditional business and 4x 2026E P/S for the EV business [7]

Core Viewpoint - Xiaomi's 1Q25 adjusted earnings reached RMB 10.7 billion, reflecting a 28% quarter-over-quarter and 64% year-over-year increase, surpassing expectations due to strong sales and improved gross profit margins across all segments [1][2] Financial Performance - Revenue for 1Q25 grew 47% year-over-year to RMB 111.3 billion, driven by growth in all segments: - Smartphone sales increased 9% year-over-year, with an average selling price (ASP) reaching a record high of RMB 1,121, supported by a successful premiumization strategy and a market share of 18.8% in China [2] - IoT sales surged 58.7% year-over-year, particularly in air conditioners, refrigerators, and washing machines, with a gross profit margin (GPM) improvement of 5.4 percentage points to 25.2% due to ASP hikes and better product mix [2] - Smart EV segment showed rapid growth with GPM improving to 23.2%, aided by resilient ASP and cost optimization, while operating loss narrowed to RMB 0.5 million [2] Strategic Outlook - The company anticipates continued growth in 2025 through strategies focused on smartphone and EV premiumization, ramping up IoT and EV capacity, and developing in-house SoC chips [1][2] - Key management focus areas include: - Premiumization strategy targeting the RMB 6,000+ smartphone segment and expansion into non-smartphone/EV categories and overseas markets [2] - Maintaining a shipment guidance of 180 million smartphones for FY25E, with an emphasis on improving product mix [2] - Accelerating capacity expansion in AIoT amidst SKU shortages [2] - Positive outlook on smart EV shipments, ASP, and profitability [2] Valuation and Recommendations - The target price has been raised to HK$ 65.91, reflecting a 37.7x FY25E P/E, with FY25-27E EPS forecasts increased by 5-10% due to the strong 1Q25 results and outlook [3] - The company maintains a BUY rating, with upcoming catalysts including Investor Day, updates on smart glasses, EV Phase 2 plant, and YU7 ASP [3]