Xiaomi Earnings: Strong Smartphone Margins Retained

Xiaomi’s fourth-quarter 2023 result was again highlighted by strong margins from smartphones with a smartphone gross margin of 16.4%, double that of fourth-quarter 2022 and down only slightly from the record 16.6% it reported in the third quarter of 2023. The company also continues to spend strongly on research and development, with related expenses up 16% year on year to CNY 5.5 billion, driven in part by spending on smart electric vehicles and other growth initiatives such as robotics. Fourth-quarter revenue was up 10.9% year on year, with operating profit, excluding investment revaluations, up to CNY 4.7 billion from HKD 115 million in the fourth quarter of 2022. The fourth-quarter underlying operating profit margin increased to 6.4% from 0.2% a year ago. We retain our fair value estimate of HKD 16.50 per share and the stock has a 3-star rating at these levels.