Xiaomi (1810 HK)_Buy_ Re-rating set to continue

Xiaomi (1810 HK) Equity Research Summary Industry Overview - Industry: Electronic Equipment & Instruments - Company: Xiaomi Key Points and Arguments National Subsidy Programme Impact - Xiaomi is positioned as a key beneficiary of the nationwide subsidy programme, which is expected to enhance the sales of China's Android brands, particularly those with retail prices below the subsidy cap [2][3] - In the first week post-implementation (20-26 January), Xiaomi's smartphone shipments surged approximately 127% year-over-year and 110% week-over-week, marking the highest improvement among major Chinese smartphone brands [3] Smartphone Sales and Forecasts - The best-selling models during the subsidy period included the Redmi K80, Redmi Note 14 Series, and Xiaomi 15/15 Pro Series [3] - Forecasts for Xiaomi's smartphone shipments have been raised by 2% for 2025 and 3% for 2026, with an average selling price (ASP) increase of 3% for both years [3] AI Edge Devices and Growth Opportunities - The introduction of DeepSeek-R1 is expected to lower AI training and inferencing costs, driving demand for AI applications and edge devices [4] - Xiaomi's established AIoT device platform positions it favorably for growth, with wearable devices also included in the subsidy programme, further enhancing growth prospects [4] Electric Vehicle (EV) Deliveries - Monthly deliveries of the Xiaomi SU 7 Series exceeded 20,000 units in January 2025, maintaining this level for four consecutive months [5] - The annual EV shipment target for 2025 has been reaffirmed at 300,000 units, with estimates raised to 330,000 units due to additional capacity from the new car factory [5] Financial Performance and Valuation - Non-GAAP net profit estimates have been increased by 2% for 2024, and 6% for both 2025 and 2026, reflecting positive outlooks across smartphones, AIoT, and Internet segments [6] - The target price has been raised to HKD49.90 from HKD37.90, indicating a potential upside of approximately 26% from current levels [6][36] Revenue and Profit Estimates - Revenue estimates for 2024, 2025, and 2026 have been increased by 1%, 4%, and 5% respectively, driven by better forecasts for smartphones, AIoT, and Internet segments [32] - Gross profit margins (GPM) are also expected to improve, with increases of 0.1ppt in 2024, 0.2ppt in 2025, and 0.4ppt in 2026 [32] Risks and Challenges - Potential risks include component shortages, competition in IoT and Internet services, and foreign exchange volatility, which could impact revenue and profit margins [41][45] Additional Important Information - Xiaomi's market capitalization is approximately USD 104.83 billion, with a free float of 70% [8][17] - The company has a strong cash flow from operations, with projections indicating continued growth in net profit and operating margins over the next few years [14][15] This summary encapsulates the key insights from the equity research report on Xiaomi, highlighting its growth potential, financial outlook, and associated risks in the current market environment.