Wall Street Highlights – Equity

MS note Xiaomi's impressive EV shipment figures, with 135,000 units delivered in 2024, marking a significant milestone in capacity ramp-up. The strong order backlog for the SU7 model, with delivery wait times exceeding 20 weeks, has led to an increased 2025 shipment target of 300,000 units. MS are particularly optimistic about the prospects of Xiaomi's second EV, an SUV, which they believe is highly likely to succeed in 2025. This optimism is based on Xiaomi's track record in 2024 and the company's "Smartphone + EV + AIoT" integration strategy, which is expected to enhance its competitive edge over peers.

MS have revised their intrinsic value estimate for Xiaomi's EV business from Rmb170bn to Rmb204bn, reflecting higher volume forecasts and improved gross margin assumptions. The cumulative EV gross profit is projected to increase from Rmb39.3bn to Rmb48.1bn for 2024-2026E. This upward revision is supported by the expectation that Xiaomi's EV average selling price (ASP) will rise from Rmb235k in 2024 to Rmb250k in 2026, driven by the introduction of higher-end models like the YU7.

In addition to the EV segment, Xiaomi's AIoT and smartphone divisions are also expected to contribute positively to revenue and earnings growth in 2025. The AIoT division has shown solid growth, with strong performances in tablets, air conditioners, refrigerators, and washing machines. MS expect Xiaomi to continue innovating and expanding its product portfolio, which will support margin improvement. The smartphone division is anticipated to gain market share, particularly with the launch of premium models like the Xiaomi 15, which has seen strong sales despite higher ASPs.

MS acknowledge several risks that could impact Xiaomi's EV project, including potential quality control issues during rapid volume increases, lagging behind peers in after-sales service and user base, fierce competition in the EV market, and geopolitical tensions affecting component supply and sales performance.

Overall, MS maintain a positive outlook for Xiaomi, emphasizing the company's potential to disrupt the EV market with its innovative products and integrated business model. MS conclude that Xiaomi's unique approach to combining EVs with consumer electronics and AIoT could position it as a significant player in the smart EV race, despite the challenges it may face.

MS have raised their price target for Xiaomi Corp from HK$35 to HK$45, implying a 17% upside potential. This increase is based on the higher intrinsic value of the EV business and positive developments in the AIoT and smartphone divisions. The new price target reflects a sum-of-the-parts valuation, incorporating the residual income model for the smartphone, IoT, and Internet Services businesses, and a probability-weighted DCF model for the EV business.

Stock: 1810.HK

Stock Rating: Overweight

12m Price Target: HKD 45.00 (Previous Price Target: HKD35)