Xiaomi Q1 Profit Could Beat Expectations, But Risk of Missing Full-Year EV Delivery Target Rises

Overview

This report is a performance preview and full-year outlook from J.P. Morgan on Xiaomi Group (1810.HK) for Q1 2026. The core view holds that although revenue growth in smartphones and electric vehicles is slowing, Xiaomi's overall Q1 adjusted net profit may exceed market concerns due to margin improvements in smartphone and IoT businesses. However, the institution downgraded its 2026 fiscal year earnings per share (EPS) forecast by approx. 27%, pointing out that smartphone gross margins will face continued pressure as memory chip costs surge significantly in the second quarter. A more critical concern lies in the EV business: deliveries in the first four months completed only 20% of the annual target. To achieve the 550,000 unit full-year goal, steep capacity ramp-up is needed in the second half, carrying high risk of full-year guidance downgrade. Therefore, the institution maintains a 'Neutral' rating with a target price of HK$35.

Core views

Smartphone and IoT Business: Profit resilience outperforms revenue growth. J.P. Morgan raised its Q1 core business adjusted net profit forecast by approx. 30%, driven primarily by better-than-expected performance in smartphone and IoT gross margins. Smartphone Q1 gross margin is expected to reach 9.5% (previously approx. 8%), aided by increased proportion of high-end models and remaining low-cost storage inventory. IoT gross margin expected to remain around 25%, benefiting from increased contribution from overseas markets. However, this margin advantage is hard to sustain long-term. The report indicates that semiconductor prices (DRAM and NAND) are expected to rise 40-60% quarter-on-quarter in Q2, continuing cost pressure. Although Xiaomi can defend approx. 8% gross margin through raising retail prices, reducing configurations (despeccing), and ceding some low-end market share, this comes at the expense of shipment volume. The institution expects smartphone shipments in 2026 to decline year-on-year by approx. 19%, dragging down overall revenue scale. Electric Vehicle (EV) Business: Delivery progress lags, huge pressure in second half. As of April 2026, Xiaomi EV cumulative deliveries approx. 109,000 units, completing approx. 20% of the 550,000 unit annual target. This progress triggered market concerns about whether Xiaomi would downgrade full-year guidance. Data shows SU7 facelift model market tracking outperforms YU7, obtaining approx. 20,000 new locked-in orders in two weeks, with longer wait times than YU7; in contrast, YU7 delivery quantity declined consecutively for three months from December 2025 to March 2026. To achieve full-year targets, Xiaomi needs average monthly delivery exceeding 55,000 units in remaining months, while single factory historical peak monthly delivery was approx. 50,000 units, supply chain bottlenecks evident. Unless both demand side (YU9 launch, SU7 facelift strong) and supply side (e.g., progress on second factory) improve simultaneously, risk of guidance downgrade remains high. Valuation and Stock Price Judgment: Near bottom but lacks catalysts. Institution believes Xiaomi stock price has approached its estimated bottom range (approx. HK$26-27, corresponding to approx. 2x forward P/B or 10-12x forward P/E, similar to 2019 and 2022 downturn cycle levels), because market worries on phone/EV margins and slowed 2026 revenue growth have been largely reflected in stock price. But before storage price stabilizes or overseas EV expansion narrative (potentially from H2 2027 Europe market) improves, there is no obvious short-term stock price catalyst.

Analysis framework

J.P. Morgan adopted an analysis approach combining Sum-of-the-Parts (SOTP) valuation method with fundamental volume-price decomposition in this report. Firstly, on fundamental analysis, the institution independently decomposed drivers for Xiaomi's core businesses (Phone+IoT) and new businesses (EV). For phone business, focused on trade-off between 'gross margin vs shipment volume', predicting cost pressure via tracking upstream memory chip (DRAM/NAND) price trends, and evaluating gross margin defense capability combining product mix (premiumization) and pricing strategy. For EV business, adopted high-frequency data tracking (weekly delivery, locked orders, car pickup wait time) to verify real heat on demand side, and quantified second half delivery pressure by comparing historical peak capacity with target gap. Secondly, on valuation layer, institution uses SOTP method: Core business given 12x forward P/E excluding cash after 12 months, EV and new business given 1.5x forward P/S for 12 months. This method separates cash flow value of mature hardware business with revenue premium of growth-type EV business more clearly, avoiding distortion from single valuation multiple. Finally, judging stock safety margin and potential rebound space by comparing current stock price with valuation bottoms during historical downturn cycles (PB/PE Bands).

Methodology notes

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts (SOTP) Segment Add-Up Valuation

  Value different nature businesses of company (such as mature phone hardware business and high-growth EV business) separately then sum up. Mature business typically uses PE valuation, growth business uses PS valuation, can more accurately reflect real value of diversified company.

• Industry / Industry Analysis FrameworkVolume-Price Split

  Volume-Price Split Analysis

  Decompose change of revenue or profit into 'volume' and 'price/gross margin' two dimensions. In this report, used to analyze how Xiaomi protects gross margin by adjusting product structure and pricing when memory cost rises (price/profit damaged), but may lead to shipment decline.

• Cycle and Prosperity Framework

  Upstream Component Price Cycle Transmission

  Pay attention to price fluctuation cycle of upstream core components (such as DRAM/NAND memory chips) how it transmits to downstream terminal product cost and gross margin. Report derives logic that Xiaomi phone gross margin under pressure by anticipating sequential large rise in storage price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xiaomi Group (1810.HK)

  Directly Covered Target

  Strengths

  Q1 phone and IoT gross margin exceeds expectation, capable of defending cost pressure through raising price and product structure adjustment; stock price approaching historical valuation bottom.

  Weaknesses

  2026 EPS expected significant decline; EV delivery progress severely lagging behind full-year target; storage cost large increase erodes profit; short term lacks clear catalyst.

  Comparison

  Compared to pure EV carmakers, Xiaomi has phone business cash flow support; compared to pure phone manufacturers, Xiaomi has EV growth narrative, but currently both face phase dilemma.

  Risks

  FY26 EV delivery target downgrade; IoT demand slowdown leads revenue further cut; storage price continues high; new model YU9 market reaction cold.

Key data

• FY26 EPS Forecast ChangeDowngraded approx. 27%YoY decline, lower than market consensus 12%
• Q1 Smartphone Gross Margin Forecast9.5%Higher than prior 8% expectation, benefited from high-end model share and low-cost inventory
• Q2 Memory Chip Price Expected Increase40-60%DRAM and NAND price sequentially expected large increase, constitutes cost pressure
• First 4 Months Cumulative EV Delivery Volume~110,000 unitsOnly accounts for approx. 20% of annual 550,000 target
• Second Half Avg Monthly EV Delivery Requirement55,000+ unitsAverage monthly delivery required to achieve full-year target, higher than historical peak
• Target PriceHK$35.00Based on SOTP valuation, implies approx. 10% upside space

Impact & implications

Report considers that although Xiaomi can resist part of cost pressure through product mix optimization in short term, making Q1 profit performance acceptable, full-year profit growth faces double squeeze: first is smartphone gross margin ceiling caused by storage cost increase, second is revenue scale contraction led by potentially sacrificing shipments to protect gross margins. More importantly, EV business as key source of valuation elasticity, lagging delivery progress not only increases operational risk, but may force management team to downgrade full-year guidance, thus striking market confidence. Investors should beware of valuation correction risk if EV delivery cannot significantly accelerate in second half, and also need to pay attention to when storage price stabilizes and progress of overseas EV market expansion, these will be potential catalysts for future stock price breaking out from current consolidation zone.

Risks

• IoT demand slowdown leads top-line revenue further cut
• Due to unsustainable SU7 facelift demand or new model (such as YU9) market reaction flat, leading FY26 EV delivery target downgrade
• Market competition intensifies and order backlog decreases
• Memory chip price continues rising beyond expectation, squeezing smartphone gross margin

What to watch

• Whether Q2 EV delivery quantity can significantly ramp-up
• Whether signs of stabilization appear in memory chip (DRAM/NAND) price
• Release schedule and market order situation for下半年 YU9 new model
• Progress of overseas market (especially Europe) EV expansion narrative