AIoT And Premium Products Will Unlock Global Potential

Key Takeaways

• Expansion of smart ecosystem, premium product push, and global retail reach drive revenue growth, strengthen cross-selling, and enhance margins through value capture and higher selling prices.
  
• Investment in AI, chips, and sustainability delivers differentiated products, builds recurring higher-margin services, and fortifies brand equity against regulatory and market risks.
  
• Sustained price competition, rising costs, and uncertain overseas expansion threaten Xiaomi's margin improvement and earnings growth amid heavy investment in new technologies and business lines.

Catalysts

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

• Continued rapid expansion of Xiaomi's AIoT and smart appliance ecosystem, reinforced by aggressive offline and new retail channel expansion-especially internationally-positions the company to benefit from surging demand for connected living. This should underpin sustained revenue growth and improve cross-selling momentum across product lines.
  
• The company's successful push into premiumization, evidenced by growing sales of high-end smartphones, appliances, and electric vehicles, along with the launch of proprietary 3nm chips and advanced AI features, supports higher average selling prices and improves net margins as Xiaomi captures greater value per customer.
  
• Accelerated R&D investments in core areas like AI, chips, smart EVs, and connected hardware enable differentiated offerings and ecosystem lock-in, allowing Xiaomi to ride the trend of AI-hardware-software convergence. Over time, these capabilities should expand higher-margin services and recurring revenue, boosting earnings resilience.
  
• Xiaomi's accelerating global expansion, targeting emerging markets with rising middle classes (India, Southeast Asia, Africa) and planned EV entry into Europe, aligns it with strong, long-term consumer adoption trends and positions it for revenue growth, offsetting slower growth in more mature markets.
  
• A stepped-up focus on sustainability-including green manufacturing initiatives in EV facilities, increased use of renewable energy, and ESG commitments-bolsters Xiaomi's appeal with both eco-conscious consumers and regulators. This enhances brand equity, reduces regulatory risks, and supports future margin stability.

Xiaomi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Xiaomi's revenue will grow by 21.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 9.1% in 3 years time.
• Analysts expect earnings to reach CN¥69.6 billion (and earnings per share of CN¥2.67) by about September 2028, up from CN¥37.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥97.1 billion in earnings, and the most bearish expecting CN¥46.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.7x on those 2028 earnings, down from 35.0x today. This future PE is greater than the current PE for the HK Tech industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 4.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Xiaomi Future Earnings Per Share Growth

Risks

• The smartphone industry is entering a mature phase with little overall market growth and an intensely competitive landscape where top brands hold similar market shares, which may lead to price wars and sustained pressure on Xiaomi's smartphone volume growth, ASP (average selling price), and margins over the long-term.
  
• Persistent reliance on low
• to mid-end smartphone segments and exposure to industry-wide cost increases (memory, batteries, materials) may constrain Xiaomi's ability to sustainably improve product gross margin and net profit margins, especially given ongoing price competition and slow premiumization progress in overseas markets.
  
• Slowing growth rates and potential saturation in China's large appliance and IoT markets, combined with intense price competition and limited overseas channel expansion, increase the risk that Xiaomi's rapid AIoT and appliance revenue growth may decelerate, weighing on overall top-line growth and ecosystem profitability.
  
• International expansion, particularly with premium products such as EVs, faces uncertainty due to evolving regulatory environments, potential geopolitical frictions, and the need to establish Xiaomi's EV brand overseas, threatening future revenue and requiring substantial additional investment that may suppress earnings and margins during ramp-up.
  
• Escalating R&D expenses, especially for AI, chips, and automotive initiatives, create long-term financial risk: if new business lines (such as EVs and AI-powered devices) do not maintain strong order volume, achieve ecosystem stickiness, or reach scale swiftly, the company could experience margin dilution and muted earnings growth.

Valuation

• The analysts have a consensus price target of HK$66.138 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$80.38, and the most bearish reporting a price target of just HK$36.17.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥765.2 billion, earnings will come to CN¥69.6 billion, and it would be trading on a PE ratio of 32.7x, assuming you use a discount rate of 8.5%.
• Given the current share price of HK$54.7, the analyst price target of HK$66.14 is 17.3% 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.