We slightly lower 2Q25 revenue forecast from RMB123bto RMB114band adj. NI forecast from RMB10.9bto RMB10.4bn, to reflect 1) 42.5m smartphone shipments with more lower end mix and rising memory cost leading to slightly lower GPM; 2) national subsidy pause ipart of 2Q25 may add pressure omargins. Meanwhile, to reflect slower-than- anticipated launch of Beijing phase-two plant, we nudge dowour sales volume forecast for 2025 to 400k units but leave our forecast for 2026 at 700k units. With a 16% correctiofrom its recent peak, Xiaomi’s valuatioagaibecomes very attractive, supported by our unchanged view omid-term growth sustainability. Reiterate our sector top BUY rating while slightly cut TP from HK$75.25 to HK$74.4.
　　Key Factors for Rating
　　2Q25 preview: We lower 2Q25 group revenue forecast from RMB123bto RMB114band 2Q25 adj. NI forecast from RMB10.9bto RMB10.4bn, mainly anticipating: 1) 42.5m smartphone shipments with more lower end mix and rising memory cost per IDC, leading to slightly lower GPM; 2) national subsidy pause ipart of 2Q25 may add pressure omargins.
Smart EV business: Xiaomi delivered 30,452 units iJuly, after a moderate setback iJun, helped by continuing capacity release iphase-one while the phase-two plant has not yet commenced productions. For 2Q25, the improved product structure with escalated Ultra editiosales mix will drive gains igross margiand loss reductiosequentially, which will make profitability i2H25 well otrack. To reflect slower-than-anticipated launch of Beijing phase-two plant, we nudge dowour sales volume forecast for 2025 to 400k units but leave our forecast for 2026 at 700k units. Although Xiaomi’s smart EV segment is poised to enter a profitable phase from 2H25, we will continue to adopt P/S multiples to value the business as we reckothe figure at the bottom line may not entirely reflect the profitability and growth prospect of Xiaomi EV business. By adopting unchanged 4x 2026E P/S, we assiga TP for smart EV business at HK$30.40.
Smartphone: According to IDC, Xiaomi's global smartphone shipments reached 42.5m units (+0.6% YoY) i2Q25, with China shipping 10.4m (+3.4% YoY) and ROW shipping 32.1m (-1% YoY ). IChina market, Xiaomi stood out as the only top-5 OEM to achieve positive YoY growth, driveby Xiaomi 15/15Ultra/15S Pro and robust performance ithe mid-range segment. However, we expect iPhone’s price discount, pause of national subsidy and memory price pickup will add margipressure. We therefore lower our smartphone GPM estimate from 13.0% to 11.5% i2Q25. We also lower 2025 smartphone shipment forecast from 181m to 178m, reflecting overall soft end-demand amid macro uncertainty.
　　IoT: We expect the IoT segment to maintaistrong growth momentum i2Q25, fueled by robust tablet sales (3m shipment, +42% YoY per IDC) as Company spent more effort ithis product line and share gaiilarge home appliance iChina. However, givethe intensifying price wars and more promotions, especially during 618 Festival, we slightly lower our 2Q25 revenue forecast by 1% to RMB36b(+36% YoY), with GPM unchanged at 23% but dow2.2ppts QoQ. With Xiaomi’s new retail expansiooverseas and self-developed R&D initiatives across more IoT SKUs, we believe the IoT segment will remaia key driver of upside surprise among the company’s traditional businesses.
Internet services: We lower revenues estimate to RMB9.1bfrom RMB9.3bi2Q25, givethe potential lower mix ihigh-end smartphone models. Overall, we expect this segment to slightly outgrow smartphone business driveby Company’s premiumisatiotrend.
　　Key Risks for Rating
　　Domestic OEMs competition; Geopolitical conflict and trade war; Component price increase; Tax dispute iIndia; Unsatisfactory smart driving progress.
　　Valuation
　　We slightly lower 2025/26 adjusted EPS by 4%/2% to reflect short-term weakness ismartphone ASP and margicaused by competitioand component price increase.
We use unchanged 21x 2026E P/E to derive Xiaomi’s traditional business value of HK$44.0 per share. Together with HK$30.4 TP for EV business, we slightly lower our SOTP TP of Xiaomi to HK$74.4 from HK75.25. We reiterate Xiaomi as our top BUY.