4Q25 better than feared; Positive on AI investment to bear fruit in 2026-27

4Q25 betterthanfeared; Positive on AIinvestment to bear fruitin 2026-27 Target PriceHK$44.47(Previous TPHK$47.16)Up/Downside36.1%Current PriceHK$32.68 Xiaomi’s4Q25 resultswerebetter than feared, with revenue/adj.net profit growthof +7%/-24% YoY,1%/10% aboveBloombergconsensus estimates,thanks tobettersmartphone ASP(+7% YoY), smart EV’sstrongeroperating income andbetter operating leverage. Looking into FY26E,whilesmartphone/auto industryheadwindsremain in near term, webelieve Xiaomi is well-positioned tostrengthenits industry leadershipgivenitssolid execution inpremiumization strategy,IoToverseas expansion, share gainsofnew-gen SU7/YU7andleadingmulti-modalAI capability. Overall, welowerour FY26-27ENPby4-9% to factor in 4Q25 resultsand weaker GPMin FY26-27E. Our new SOTP-based TPofHK$44.47implies29.5x/23.9xFY26/27E P/E. Reiterate BUY. China Technology Alex NG(852) 3900 0881alexng@cmbi.com.hk 4Q25 betterthanfearedonbetter smartphone mix, EVmomentumandresilientinternet.Xiaomi’s4Q25revenue/adj.net profit growth of+7%/-24%YoY is better-than-feared,being 1%/10%above consensus and2%/18% above our estimates.By segment: 1) smartphone:revenuewas-14% YoY due to weaker shipments(-12%)despiteASP hikes(+7%), andlower GPM of 8.3% (vs 11.1% in 3Q)givenhigher memory cost; 2) IoT:revenuewasdown 20% YoYdue to fading subsidy impact in China, despitestronger tablets/TVsin overseas markets;3) Smart EV: revenue climbed122% YoYwith145k deliveries and ASP +6.6% YoY.In particular, EV’soperating incomecontinued to improve toRMB1.1bnin 4Q (vs.RMB0.7bnin 3Q). Hanqing LIlihanqing@cmbi.com.hk Stock Data 2026 outlook:SPpremiumization, EVmodellaunches,IoT overseasexpansionand AI initiatives to accelerate.During earnings call, despiteauto/smartphone demand weakness in near term,mgmt.is confident tonavigate the headwinds and enhance industry leadership: 1)Memory cost:LTA with suppliersand no supply shortage concerns, and limited impact onIoT/EV.2)Smart EV:550kdeliverytarget in 2026 andoverseas expansionin2027on track. 3) IoT: overseasTAM (ex. NA) is 3 timesthatof China,and overseasexpansionwillacceleratein 2026(target1kstoresvs. 450 inFY25). 4)AI investment:RMB60bnAIspendingin 2026-28, and clear AImodel roadmap will strengthen ecosystem with AI/OS/chip capabilities. AcceleratedAIdevelopments setto bear fruitin 2026-27;ReiterateBUY.We adjustour FY26-27E adj. EPS by4-9% to reflect FY25 resultsandsofterGPM into 2026-27 due to memory cost hikes.Our new SOTP-basedTPofHK$44.47implies 29.5x/23.9xFY26/27E P/E. Reiterate BUY. Source: FactSet Focus Charts Source:Companydata, CMBIGM estimates Source:Company data, CMBIGM estimates Source:Company data, CMBIGM estimates Source:Company data, CMBIGM Source:Company data, CMBIGM Source:Company data, CMBIGM 4Q25 Review EarningsRevision Valuation Maintain BUY with new SOTP-based TP of HK$44.47 We derive our TP of HK$44.47based on the SOTP methodology in order to reflect differentgrowth profiles of Xiaomi’s various businesses. We assignsame 18x/23x/25x FY25E P/Eto its smartphone/AIoT/Internet businesses.For EV business, we assignthesame2.0xFY26E P/S. In addition, we believe our implied target multiple of29.5x/23.9x FY26E/27EP/Eis justifiedgivenglobalshare gains in smartphone market, premiumization strategy,IoToverseas expansion,resilient internet business,and EV shipment momentum.Upcoming catalysts includenew product launches, and EV capacity expansion. Source: Bloomberg, CMBIGM Source: Bloomberg, CMBIGM Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this researchreport, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code ofconduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected