Key takeaway
Xiaomi Group released its 1Q26 results, with total revenue of RMB99.1bn (YoY -10.9%, QoQ -15.2%) and adjusted net profit of RMB6.1bn (YoY -43.1%, QoQ -4.4%). Operating loss from EV and other new businesses was RMB3.1bn, mainly due to lower vehicle deliveries and the impact of purchase tax subsidies. Adjusted net profit from core businesses was RMB9.2bn (YoY - 18%). Short-term earnings were under pressure, mainly affected by memory price fluctuations, intensified industry competition, and a decline in vehicle deliveries. Despite short-term pressure on traditional core businesses under the broader industry cycle, the company continues to actively invest in AI. R&D spending in 1Q reached RMB9.0bn (YoY +33.4%), and the MiLM? V2.5 series large model was released and open-sourced in April. In addition, the company has been actively conducting share repurchases. Since the beginning of the year, the repurchase amount has reached HKD8.4bn, already exceeding the total for last year. The company also announced a new HKD20bn share repurchase plan for a 12? month period (the current share repurchase program will expire on June 2, 2026).
Quick Take
Smartphone business faces short-term pressure, while product mix continues to optimize to address the memory cycle. Smartphone business revenue in 1Q was RMB44.3bn (YoY -12.5%). Shipments were 33.8mn units (YoY -19.2%). According to Omdia data, global smartphone shipments ranked third in 1Q with a market share of 11.3%, marking the 23rd consecutive quarter among the global top three. Smartphone ASP in 1Q increased 8.2% YoY to RMB1,310, a record high. This was mainly due to proactive product mix adjustments. Starting in April, Xiaomi officially announced price increases for certain models (relatively later than peers). For the full year, ASP is expected to continue rising. Smartphone gross margin in 1Q was 10.1%, down 2.3pcts YoY but up 1.8pcts QoQ, showing marginal improvement. However, cost pressure remains. In 2Q and 3Q, amid the 618 promotion and the absence of new models, gross margin is expected to decline QoQ.
IoT business prioritizes profitability, while internet services maintain steady growth. IoT business 1Q revenue wasRMB24.7bn (YoY -23.7%), mainly due to the tapering of domestic subsidies and a high base last year. The company follows a profitability? first strategy, actively expanding overseas channels and product categories. Gross margin reached 25.2%, up 5.1pcts QoQ. Internet services maintained steady performance, with 1Q revenue RMB9.5bn (YoY +4.3%), with gross margin stable at 76.1%.
Automobiles were affected by purchase tax subsidy support and quarterly delivery fluctuations, while new products are expected to drive sales growth. 1Q deliveries reached 80,900 units, with the YU7 as the main delivered model. This represented a temporary delivery trough. ASP was around RMB235,000. Affected by purchase tax subsidies, rising battery costs and lower deliveries, the gross margin of the auto and new business segment declined QoQ to 20.1% in Q1. In May, the company further launched the sports-car-level YU7 GT and the cost-effective YU7 Standard Edition, continuing to enrich its product matrix and laying the foundation for subsequent sales growth.
Earnings forecast and valuation: Revenue of Xiaomi Group is expected to reach RMB484.6bn/RMB607.7bn in 2026/2027 (YoY +6%/+25%). Adjusted net profit is expected to reach RMB28.6bn/RMB39.3bn (YoY -27%/+37%). We assign 20x PE to the company’s core businesses for 2026 and 2.5x PS to the automobile segment for 2026, with a target price of HKD38.7 and a “buy” rating.