Apple's China rival Xiaomi still has major upside, analysts say, even after record earnings

Xiaomi reported a second consecutive quarter of record net profit, exceeding analyst expectations with 10.68 billion yuan ($1.48 billion) in adjusted net income and 111.29 billion yuan in revenue for Q1, driven by strong AIoT appliance sales. Jefferies raised its price target to 73 HKD, citing outperformance in AIoT, while Morgan Stanley anticipates the upcoming July launch of Xiaomi's YU7 SUV as a key catalyst, potentially boosting margins and earnings; however, JPMorgan maintains a neutral rating, noting slower ecosystem-related revenue growth compared to hardware.

Analysis

Xiaomi has reported a record net profit for the second consecutive quarter, with first-quarter adjusted net income reaching 10.68 billion yuan ($1.48 billion) on revenue of 111.29 billion yuan, surpassing FactSet analyst consensus estimates. This strong performance, which has contributed to a 45% year-to-date increase in its Hong Kong-listed shares to 50.95 HKD, contrasts sharply with Apple's 20% YTD share price decline. The earnings beat is largely attributed to outperformance in its "AIoT" segment, comprising AI-enabled smart appliances, which Jefferies analysts highlight as a key strength, prompting them to raise their price target to 73 HKD. While smartphones constitute nearly 40% of revenue, Xiaomi is strategically expanding its high-end offerings with the new Xring O1 chip, aiming to gain market share in China against competitors like Apple, whose A18 Pro chip Xiaomi claims its Xring O1 surpasses on several metrics. A significant future catalyst is the company's burgeoning electric vehicle business, with the YU7 SUV, set for an official launch in July, anticipated by Morgan Stanley (overweight, 62 HKD PT) to potentially drive higher average selling prices and margins. Macquarie (outperform, 69.32 HKD PT) also views Xiaomi as a beneficiary of rising EV demand and changing consumer behavior in China. However, JPMorgan maintains a neutral rating (60 HKD PT), citing concerns over slower growth in ecosystem-related revenue compared to hardware, a divergence from Apple's services-led value creation model. Upcoming events, including the June 3 investor day, are also seen as potential positive catalysts.

Key Decisions for Investors

• Investors should assess Xiaomi's continued earnings momentum, particularly the growth trajectory of its AIoT segment and the market reception of its new Xring O1 chip in high-end smartphones.
• Closely monitor the upcoming July launch and subsequent sales performance of the YU7 electric SUV, as this is widely considered a key short-term catalyst for potential margin expansion and earnings growth.
• Consider the risk highlighted by JPMorgan regarding the slower growth in services revenue relative to hardware, and evaluate its potential impact on long-term valuation sustainability.
• Pay attention to disclosures from Xiaomi's investor day on June 3 for further strategic insights and updates on its EV and AIoT initiatives.