Xiaomi’s 3Q revenue/adj.NP growth of 22%/81% YoY are slightly above our/market expectation, driven by fast-growing smart EV business, resilient internet segment and operating efficiency, offsetting weaker smartphone sales. During the earnings call, mgmt. discussed investor concerns on memory cost hike and EV purchase tax subsidies. Regarding memory pricing upcycle, mgmt. expected smartphone/PC/ tablet GPM pressure will persist in 4Q25/ 2026 despite supplier agreement to secure full-year supply in 2026, and Xiaomi’s smartphone strategy will prioritize share gains over profitability. As for EV, mgmt. expected GPM headwinds in 4Q25/2026E amid competition and EV purchase tax subsidies. We trim 2026-27E EPS by 9%/9% to reflect weaker GPM/ASP for SP/EV segments. While we believe share price may remain bumpy in the near term, we expect Xiaomi to be well-positioned to navigate the cost hike headwinds and the margin impact in 2026 to be smaller than the last cycle in 2021-22 (SP GM down 4.7ppt), given premiumization and lower smartphone revenue exposure (34% in 2026E, vs 64% in 2021). We roll over TP to FY26E and new SOTP-based TP of HK$ 55.31 implies 26.3x FY26E P/E. Maintain BUY.
Solid 3Q25 backed by resilient internet and strong EV sales with operating income breakeven. Xiaomi’s 3Q25 revenue growth of 22% YoY was in line with our/market expectations driven by smart EV and internet services growth. By segment, 1) smartphone revenue declined 3% YoY due to flattish shipments and ASP decline; 2) smart EV revenue grew 198% with operating income breakeven for the first time, thanks to strong EV delivery and ASP hikes; 3) IoT revenue climbed 6% YoY driven by overseas markets, partly offset by weaker China large home appliances sales; 4) Internet: revenue grew 11% YoY on solid advertising growth.
4Q25/FY26E outlook: memory cost pressure to weigh on GPM; positive on smart EV and IoT expansion. Overall, mgmt. is conservative on margin headwinds in near term given memory cost hikes and EV tax subsidies, but Xiaomi’s strategic objectives on smartphone/EV share gains, new retail network and overseas expansion remain well on track. By segment, 1) smartphone: GPM pressure will persist into 4Q25/2026, and memory supplier agreement signed to secure supply in 2026; 2) smart EV: expect 2026 GPM to decline on competition and EV purchase tax subsidies; 3) IoT: rapid overseas expansion and Xiaomi OS/MI local LLM as solid foundation of edge AI ecosystem. Regarding overseas new retail strategy, Xiaomi focuses on Asia (Japan/Korea) and Europe in 2025 and will target LATAM and Africa in 2026.
Strong ecosystem and market expansion to weather headwinds; Maintain BUY. We trim FY26-27E adj. EPS by 9%/9%% to reflect 3Q results, rising memory cost and competition. We roll over TP to FY26E and new SOTP-based TP of HK$ 55.31 implies 26.3x FY26E P/E. Upcoming catalysts include product launch, memory pricing updates and EV capacity ramp-up.