We lower 3Q25 revenue forecast from RMB122bn to RMB113bn andadj. NI forecast from RMB10.7bn to RMB10.5bn, to reflect 1) 43.5m3Q25 smartphone shipments facing memory price pressure; 2)tightening national subsidy and intensifying competition in 3Q25 maypressure IoT sales momentum given Xiaomi’s absence from price war;3) smooth delivery and elevated YU7 SUV mix should mark firstprofitable quarter of smart EV segment with RMB700-800m GAAP netprofit. While industry headwinds may last into 2026 across all keysegments, we believe Xiaomi is able to navigate through its operationrobustness and brand premium. We maintain our positive stance onXiaomi mid-term growth sustainability. Reiterate BUY with slightlylower TP from HK$74.4 to HK$71.9.
　　Key Factors for Rating
　　Smart EV business. In 3Q25, we estimate the elevated YU7 SUV mix shouldpropel upward product mix shift and raise blended ASP to RMB260k. Despiteimproving scale effect, we expect a modest QoQ pullback in gross margins from2Q25 at 26.4% in light of YU7’s initial ramp-up costs and lower SU7 Ultra volumecontribution which enjoys much higher profitability. Combined with improvedOPEX efficiency, we expect smart EV segment to mark first profitable quarterwith RMB700-800m GAAP net profit, slightly ahead of prior guidance forprofitability in 2H25. In addition, Xiaomi announced its generous limited-timesubsidy programme of up to RMB15k for locked orders before 30 Nov (but 2026delivery), which aligns with peers against the backdrop of government NEV taxbenefits scale-down next year. However, we view the potential profit erosionfrom this limited-time subsidy policy for Xiaomi as less severe than market fears.
　　We anticipate Xiaomi’s EV profitability may stay resilient against industryheadwind next year given its position in a rapid delivery ramp-up stage withenhanced OPEX efficiency amid a robust product upcycle.
　　Smartphone: According to IDC, Xiaomi's global smartphone shipments reached43.5m units (+2% YoY) in 3Q25, with China shipping 10.0m (-2% YoY) andROW shipping 33.5m (+3% YoY). The shipment decline in China primarilyreflects the tightening of national subsidy and a lack of new products as mostXiaomi 17 sales will be booked in 4Q25. We cut 2025-27 smartphone GPM by0.3-0.6ppt to reflect beyond expected upward pressure on DRAM/NAND prices.
　　We believe the premiumisation should help Xiaomi well manage such pressure;as noted by Lu Weibing, as of Oct 23, cumulative Xiaomi 17 series shipmentshad risen 30% compared to the previous generation over the same period, withover 80% of Xiaomi 17 series shipments attributed to the Pro versions.