Despite weak demand for smartphones, Xiaomi is expected to beat earnings growth in the second quarter on lower component costs, end of de-stocking, favourable exchange rate movements, and premiumization of smartphones and Internet of Things (IoT) business, BOC International said in a note.
The broker reiterated its Buy rating on Xiaomi and raised its adjusted EPS forecasts for 2023/24/25 by 13%, 7% and 4% respectively. The target price was also hiked from HK$15.5 to HK$16.3, or 30x next year’s projected EPS.
The broker lifted its forecast of Xiaomi’s adjusted Q2 net profit by 45% to 4.1 billion yuan, 59% higher than market consensus. It expected Xiaomi’s smartphone business to adopt a more flexible strategy in the second half to cope with risks, such as weak demand and competition from Huawei, as its smartphone gross margin is likely to return to the 2021 high of 12%.
Thee broker continued to be bullish on the outlook for Xiaomi’s large home appliance business due to its large young audience base and its efforts in premiumization, such as the partnership with Panasonic.