Premium Devices And IoT Will Drive Future Expansion

Key Takeaways

• Premiumization and investment in proprietary technology strengthen profitability, brand differentiation, and growth in advanced device and ecosystem offerings.
  
• International expansion and smart EV production efficiency reduce regional risk and unlock new revenue streams across multiple sectors.
  
• Rising competition, ambitious investment bets, premium market dependence, supply chain vulnerabilities, and regulatory risks threaten Xiaomi's growth, profitability, and global expansion efforts.

Catalysts

An investment holding company, engages in the development and sales of smartphones in Mainland China and internationally.

• Xiaomi's accelerated premiumization-evidenced by record-high ASPs in smartphones and major growth in high-end device market share-reflects a successful shift toward higher-margin products and improved earnings potential, supporting future net margin and profit expansion.
  
• Sustained investment in proprietary technology (notably AI and self-developed chips) creates long-term differentiation and enables Xiaomi to deliver advanced, efficient, and ecosystem-integrated devices, driving top-line growth and margin improvement through added-value products and services.
  
• Rapid growth and leadership in the IoT and smart home segment, coupled with substantial increases in large appliance sales and product mix upgrades, position Xiaomi to capitalize on the rising demand for multi-device connectivity and ecosystem synergies, boosting both revenue and recurring service income.
  
• Ongoing international market diversification-strong gains in Africa, Southeast Asia, and Latin America versus strategic risk-reduction in India-expands Xiaomi's addressable market and reduces exposure to single-region volatility, promoting resilient and stable long-term earnings growth.
  
• Expansion and efficiency improvements in smart EV production, with consistently rising gross margins and enhanced vertical integration, leverage Xiaomi's strengths in technology and manufacturing to unlock growth in next-generation mobility, driving both revenue and future profitability.

Xiaomi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Xiaomi's revenue will grow by 22.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 9.1% in 3 years time.
• Analysts expect earnings to reach CN¥67.4 billion (and earnings per share of CN¥2.62) by about July 2028, up from CN¥30.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥96.9 billion in earnings, and the most bearish expecting CN¥43.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.2x on those 2028 earnings, down from 44.8x today. This future PE is lower than the current PE for the HK Tech industry at 32.7x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Xiaomi Future Earnings Per Share Growth

Risks

• Intensifying competition in the IoT and smart home sectors, both in China and globally, could erode Xiaomi's market share, leading to downward pressure on revenue and margins over the long term.
  
• Heavy and ongoing investments in R&D-particularly in AI, semiconductors, and electric vehicles-may not yield sufficient commercial returns, putting sustained upward pressure on expenses and potentially compressing net margins and earnings growth.
  
• Increasing reliance on higher-margin premium products and markets (such as high-end smartphones, EVs, and home appliances) exposes Xiaomi to the risk of slower adoption or negative demand shocks, which could dampen both ASP growth and overall revenue if premiumization stalls.
  
• Xiaomi's dependence on supply chain stability (including self-developed and third-party chips, and manufacturing scale-up) leaves it vulnerable to cost increases and disruptions, potentially harming gross margins and impacting profitability in periods of global or regional supply volatility.
  
• Regulatory and geopolitical risks-including unresolved issues in key international markets like India, potential trade barriers, intensified data privacy requirements, and environmental standards-could restrict Xiaomi's international expansion, increase compliance costs, and curtail long-term revenue diversification and stability.

Valuation

• The analysts have a consensus price target of HK$66.076 for Xiaomi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$80.23, and the most bearish reporting a price target of just HK$34.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥739.2 billion, earnings will come to CN¥67.4 billion, and it would be trading on a PE ratio of 30.2x, assuming you use a discount rate of 8.6%.
• Given the current share price of HK$57.3, the analyst price target of HK$66.08 is 13.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.