We project Xiaomi’s 4Q25 revenue to decelerate sharply to 8% YoY but inch 4% higher QoQ to RMB117.6bn, and adjusted net profit is expected to retreat to RMB5.5-6.0bn range, weighed down by gross margin contraction in smartphone/IoT/smart EV, year-end OPEX spikes and diminished investment income. Looking into 2026, amid a softening global smartphone market, we anticipate Xiaomi will accelerate its premiumisation efforts in China, and deepen its footprints in strategic overseas markets through a region-tailored approach. Regarding smart EV, we anticipate the upcoming product pipeline and market traction will be critical catalysts for Xiaomi to regain momentum. Overall, while Xiaomi’s near-term earnings may face across-the-board headwinds, we deem its aggressive outlays in AI, robotics, and chips are poised to yield early gains this year, anchoring the stock's valuation. Maintain BUY with TP of HK$47.88.
Key Factors for Rating
Smart EV and new initiatives business: We project 4Q25 revenue increase of over 30% QoQ, but slightly lagged volume growth due to a lower mix of the SU7 Ultra variant, causing a minor ASP decline. Gross margin is expected to drop to ~23% from 25.5% in 3Q25, eroded by the product mix shift and year-end clearance discounts of display vehicles. Nevertheless, we expect operating profit to rise to RMB1bn, fuelled by revenue scale expansion. Since year-beginning, SU7 model has been undergoing a production halt for the next-gen official launch, contributing negligibly to 1Q26 sales. Combined with seasonal softness, we anticipate a delivery decline of over 25% QoQ in 1Q26. Meanwhile 1Q26 gross margin may further dip by 2-3ppts from 4Q25, pressured by cross-year purchase tax subsidies and financing subsidy programs. At present, we maintain 2026-27E revenue estimates at RMB166.5bn and RMB225.2bn, based on sales forecast of 650k and 930k units, respectively. Applying a 3x 2026E P/S multiple, we value the standalone smart EV segment at RMB500bn, equating to a pershare value of HK$20.50.
Smartphone: Xiaomi’s 4Q25 smartphone shipments declined 11% YoY to 37.8m units, reflecting national subsidy halt and competitive headwind in markets like India. We project a 2.4ppt QoQ GPM compression to 8.7% in 4Q25, due to rising memory costs but we think Xiaomi should outperform domestic peers thanks to its inventory strategy and closer relationship with memory IDMs. GPM of smartphone will still be in trough in 2026 but we expect AI smartphones cycle as a potential catalyst to elevate demand.
IoT: We expect the premature withdrawal of domestic trade-in subsidies will likely temper 4Q25 IoT revenue and margins. We project IoT revenues to drop 7% QoQ to RMB25.7bn and GPM to narrow 2.9ppts to 21% in 4Q25. While rising memory prices pressure and fierce competition still exist, we expect robust overseas expansion to mitigate domestic softness in the long term.
Internet services: We forecast 4Q25 Internet Services revenue to grow 2% QoQ to RMB9.6bn with stable GPM, thanks to strong advertising growth over Xiaomi’s expanding premium user base.
Key Risks for Rating
Domestic OEMs competition; geopolitical conflict and trade war; component price increase; unsatisfactory smart driving progress and EV capacity ramp up.
Valuation
We cut 2026-2027E revenue forecasts by 2%/1% to RMB510bn/597bn, and adj. net profit estimates by 8%/7% to RMB35bn/48bn, to reflect dimmer smartphone shipment prospects, elevated BOM costs, and compressed EV margins. While Xiaomi’s near-term earnings may face across-the-board headwinds, we believe its aggressive outlays in AI, robotics, and chips are poised to yield early gains this year, underpinning the stock's valuation.
Over the long-term horizon, Human x Car x Home ecosystem will integrate all AI-powered devices, leveraging enormous user pool and hardware-software synergies to carve out differentiated competitive moats. Maintain BUY with TP of HK$47.88 (17x 2027E P/E for AIoT segments + 3x 2026E P/S for smart EV and new initiatives).