Xiaomi May Reach an Earnings Trough in 3Q26, but Near-Term Catalysts Remain Limited
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Xiaomi May Reach an Earnings Trough in 3Q26, but Near-Term Catalysts Remain Limited
J.P. Morgan maintains Neutral, believing that rising memory prices and weak EV demand will weigh on earnings, while SkyNomad deliveries, overseas EV plans, and accelerating overseas IoT growth are needed to provide clearer signals.
- 2Q26 results were in line with expectations. Smartphone gross margin outperformed expectations, but EV business momentum and profitability were under pressure.
- 2026 smartphone shipments are forecast at 123 million units, down 26% year on year; smartphone gross margin of around 9% is considered defensible.
- The 2026 EV shipment forecast has been reduced to approximately 450,000 units, below the company's original target of 550,000 units.
- LLMs and robotics in new businesses will make limited near-term revenue contributions and are unlikely to become significant earnings drivers over the next 12–18 months.
Report interpretation
Overview
Xiaomi's 2Q26 results were in line with expectations. The smartphone business maintained gross margin through a better product mix and price increases, but rising memory prices continue to constrain demand and earnings elasticity; the EV business faces pressure on shipment and margin prospects due to weakness in the China market. J.P. Morgan believes 3Q26 may represent a near-term earnings trough, but has not yet identified clear catalysts over the next two quarters sufficient to drive a valuation re-rating.
Core views
For smartphones, low- and mid-end demand is affected by higher ASPs caused by rising memory prices, and shipments are expected to remain under pressure in 2H26; premium demand is relatively more resilient, supporting gross margin of around 9% in 2026. For EVs, deliveries of the SkyNomad EREV SUV are expected to begin in September, but a weak domestic market makes approximately 450,000 units the more likely 2026 shipment outcome. China's IoT business is weak, while overseas store expansion and major home-appliance category expansion show signs of improvement. Technological progress in LLMs and robotics has strategic significance, but the scale of near-term commercialization remains insufficient.
Analysis framework
The report evaluates Xiaomi's short- to medium-term earnings and share-price drivers by combining a review of 2Q26 results, segment operating trends, revisions to quarterly and annual earnings forecasts, market valuation ranges, and sum-of-the-parts valuation.
Methodology notes
Sum-of-the-Parts Valuation
The HK$32.00 target price is based on sum-of-the-parts valuation: the core business is valued at 11x forward earnings for the next 12 months excluding cash, while EV and new businesses are valued at 1.1x forward price-to-sales for the next 12 months.
Cyclical Trough Valuation Range
The report believes the share price is close to the previous trough range of HK$24–26 and 10–15x P/E, but earnings forecasts may still be revised downward.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Xiaomi Corporation（1810.HK）Covered Company
- Strengths
- The premium smartphone product mix is resilient, with gross margin of around 9% offering defensiveness; overseas IoT business momentum is improving; the new SkyNomad model and overseas EV expansion offer medium-term growth potential.
- Weaknesses
- Smartphone shipments are under pressure; EV business momentum and margins are below target; LLM and robotics revenue remains small in the near term.
- Comparison
- The HK$26.18 share price is close to the historical trough range of HK$24–26 and 10–15x P/E cited in the report; target price is HK$32.00.
- Risks
- Memory prices continue rising into 2027, EV demand remains weak, shipments miss expectations, and earnings forecasts continue to be revised downward.
Key data
- 2026 Smartphone Shipment Forecast123 million units, down 26% year on yearRising memory prices are lifting ASPs, placing pressure on low- and mid-end demand.
- 2026 Smartphone Gross Margin Forecast9.03%Approximately 9% in 1H26, with an improved premium product mix and price increases partly offsetting higher costs.
- 2026 EV Shipment ForecastApproximately 450,000 unitsBelow the company's original target of 550,000 units.
- 2026 Adjusted EPSRmb 0.95Reduced by 2.1% from the previous forecast of Rmb 0.97.
- 2027 Adjusted EPSRmb 1.14Reduced by 3.3% from the previous forecast of Rmb 1.18.
- 2026 Revenue ForecastRmb 434,781 millionDown 4.9% year on year.
Impact & implications
Near an earnings trough and a lower valuation range, downside may be relatively limited; however, valuation lacks a basis for sustained upside while memory costs have not stabilized, domestic EV demand has not improved, and market earnings expectations remain at risk of further downward revisions. Investors need to wait for operating evidence from product deliveries, overseas expansion, and overseas IoT growth.
Risks
- Memory prices continue to rise, further constraining smartphone demand, cost pass-through capacity, and margins.
- China's domestic EV market remains under pressure, causing EV shipments and margins to fall below expectations.
- Consensus EPS continues to be revised downward, weakening the scope for valuation recovery.
- LLM and robotics commercialization progresses more slowly than expected, making it difficult to generate near-term earnings contributions.
What to watch
- SkyNomad EREV deliveries and monthly shipment trends starting in September.
- Specific plans for Xiaomi's overseas EV market entry; the report expects the first markets may be entered in 2H27.
- Whether overseas IoT business, store expansion, and major home-appliance category sales accelerate.
- Memory price trends and their impact on smartphone ASPs, demand, and gross margin.
- Whether China EV market demand recovers and whether margins in EV and innovative businesses can improve.