With concerns over smartphone and IoT priced in, smart EV and AI business remains focus of debate
The smartphone sector faces a challenging 2026 characterised by a super memory cycle which further pushes up DRAM/NAND prices dramatically in Nov/Dec. The prolonged EV capacity uncertainty further amplifies negative sentiment towards the stock. However, as long as Xiaomi’s new products either EVs, smartphone or IoTs are able to repeat its past mass market success, we believe the stock will eventually reclaim its glory. We fine tune our forecasts to reflect smartphone BOM pressure, EV capacity uncertainty and purchase-tax subsidy cost. Reiterate BUY with new TP of HK$56.21.
Key Factors for Rating
Smart EV business: Despite the shortening delivery periods for major model variants and slowing new order intake versus capacity ramp-up, we expect Xiaomi to remain in product upcycle with solid NEV model traction next year, including upgraded SU7 facelift, YU9-EREV and YU7 GT variant. Besides, we reckon the recent concerns among bearish investors that Xiaomi’s smart EV business in 2026 may mirror Li Auto (2015 HK/TP: HK$110.00, BUY)’s underperformance this year is overly pessimistic given that the latter’s problem is caused by the decline in product strength for backbone EREV and weaker BEV acceptance that is exacerbated by MEGA fire incidents. But now we believe it is too early to draw conclusions that Xiaomi’s upcoming 2026 launches will turn out to be a failure. Having said that, we modestly revise down our 2026/2027 sales estimates to 651k/931k units to reflect the latest new launch schedules, and trim our operating profit forecasts to RMB7.7bn/14.9bn, respectively, given the lower gross margin estimates and higher R&D input in AI initiatives. We set our segmental valuation at RMB503bn (HK$20.71 per share), by applying 3x 2026E P/S.
Traditional business: Negative sentiment on Xiaomi’s traditional business may last for a while as long as memory price hike persists. Entering Dec, memory price uptrend does not slow down and we believe further downward adjustment to Xiaomi’s 2026/27 smartphone GPM appears unavoidable. Most OEMs’ responses including Xiaomi are retail price increase thus the 2026 smartphone shipment growth is likely to be negative. Meanwhile, the phase out of 2025 national subsidy and the low visibility of 2026 national subsidy arouse some investors’ concern on Xiaomi’s IoT growth. Overall, we agree that such industry wide development is negative to the stock in the near term but investors should watch out for Xiaomi’s premiumisation progress including Xiaomi’s AI, which is gradually enhancing Company’s risk resilience going forward.
Key Risks for Rating
Domestic OEMs competition; geopolitical conflict and trade war; component price increase; tax dispute in India; unsatisfactory smart driving progress and EV capacity ramp up.
Valuation
We fine tune our model to primarily reflect further BOM pressure of smartphone and EV shipment/GPM cut due to capacity uncertainty and purchase-tax subsidy. As a result, we cut 2025/26/27E adj. EPS by 2%/14%/15%.
We use 22x 2026E P/E to derive Xiaomi’s traditional business value of HK$35.5 per share. Together with HK$20.71 TP for EV business, our new SOTP TP of Xiaomi is HK$56.21 (previously HK$69.04). Reiterate BUY.