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pww.comXiaomi Corporation, Q1 2024 Earnings Call, May 23, 2024 - SEHK:1810

SEHK:1810

Anita Chan [Head of Investor Relations & Corporate Finance] 💬

During the Xiaomi Corporation Q1 2024 Earnings Call, Anita Chan, the Head of Investor Relations & Corporate Finance, made the following statements:

  1. Opening Remarks:

    • Welcomed attendees to the Investor Conference Call and Audio Webcast.
    • Reminded participants that the call might include forward-looking statements subject to risks and uncertainties.
    • Noted that information about general market conditions comes from sources outside Xiaomi.
    • Mentioned the use of audited and non-IFRS financial measures that should be considered alongside IFRS-compliant financial statements.

  2. Introduction:

    • Introduced Lu Weibing, Partner and President of Xiaomi Corporation, and Sai Wai Lam, Vice President and CFO, who would be presenting during the call.
    • Announced that Lu Weibing would share recent strategies and business updates, followed by Sai Wai Lam reviewing the financial performance of Q1 2024.
    • Indicated that the call would conclude with a Q&A session.

These remarks set the stage for the earnings call and provided an overview of what attendees could expect from the presentations and discussions.

Weibing Lu [Partner, President of the Group & President of the International Business Department] 💬

During the earnings call, Weibing Lu, Partner, President of the Group & President of the International Business Department at Xiaomi Corporation, provided several updates and insights:

  1. Q1 2024 Performance Overview:

    • Business stability and robustness due to consolidation of technologies and areas of business.
    • Xiaomi EV business launched after 3 years.
    • Revenue growth of 27% year-over-year (YoY) to RMB 75.5 billion.
    • Adjusted net profit of RMB 6.5 billion, a 100.8% YoY increase.
    • Gross profit margin of 22.3%.

  2. International Business:

    • Continued ranking as top 3 globally for 15 consecutive quarters.
    • Market presence in 63 countries and 56 markets as top 3, and in 67 markets as top 5.
    • Growth in emerging markets, particularly in the Middle East (up 7.1% to 20.9%), Africa (up to 10.6%), Southeast Asia (market share of 16.5%), and Latin America (market share of 15.3%).

  3. Core Mobile Phone Business:

    • Increase in existing business, with growth in monthly active users in China and abroad.

  4. Xiaomi EV Business:

    • Launch of Xiaomi SU7 product, with over 7,500 deliveries in April and 10,000 deliveries by mid-April.
    • Goal of exceeding 10,000 deliveries in June and 100,000 deliveries by the end of the year.
    • Expansion of service centers covering all provinces, cities, autonomous regions, and municipalities.
    • Investment in the EV team, planning to expand from 1,000 to 1,500 by the end of 2024 and to 2,000 by next year.
    • Emphasis on the closed-loop business model, including live streaming sessions for autonomous driving demonstrations.

  5. Premiumization Strategy:

    • Completion of premiumization strategy in Mainland China, focusing on the 4,000 to 5,000 RMB market segment.
    • Continuation of premiumization strategy going forward.

  6. New Retail Business:

    • Expansion of Xiaomi Home stores to 20,000 by 2026.
    • Upgrading of stores to best locations and larger floor areas.
    • Integration of Xiaomi Vehicles into Xiaomi new retail.

  7. Product Development and Execution:

    • Outstanding R&D delivery and organizational capabilities.
    • Grasp of consumer demand, reflected in the successful development of products.
    • Confidence in meeting external challenges despite rising costs of core components.

  8. Synergies Between Smartphone, EV, and Ecosystem:

    • Synergy at the product and technology level.
    • User perspective, with a focus on attracting female consumers and BEV vehicle owners.
    • Stickiness of customers due to the high cost of leaving the Xiaomi ecosystem.

  9. Strategies for Managing Rising Component Costs:

    • Strategic reserves and inventory management.
    • Optimization of product structure.
    • Leveraging the ecosystem to offset cost pressures.

  10. Retail Expansion:

    • Consolidation of existing stores to improve efficiency.
    • Plans to add another 10,000 stores by 2026, bringing the total to 20,000.
    • Upgrading of stores to better locations and larger sizes.
    • Expansion of EV retail presence to over 50 cities.

  11. Overseas IoT Business:

    • Potential for opening 10,000 Xiaomi Home stores overseas over the next five years.
    • Importance of highly efficient channels for IoT business growth.

  12. June 18 Sales Event:

    • Competition and performance in line with expectations.
    • Confidence in coping with external pressures and maintaining market share.

  13. Middle East and Emerging Markets:

    • Significant growth in the Middle East and other emerging markets.
    • Human resources adjustments and strategy modifications contributing to improved execution.

  14. AI Strategy:

    • Focus on end-to-end AI development rather than common large models.
    • Collaboration with other companies for generative large models.
    • Use of AI in smart manufacturing and material utilization.

  15. IoT Channel Strategies:

    • Emphasis on Xiaomi Home and Xiaomi channels.
    • Adherence to cost-efficiency and value-for-money principles.
    • Expansion through partnerships with local platforms and distributors.

  16. EV Gross Margin:

    • Target of 5% to 10% gross margin for the EV business.

    • Need for time to establish a more accurate profit margin.

    • Factors affecting gross margin include scale, component costs, and product mix.

Sai Wai Lam [Vice President & CFO] 💬

During the Xiaomi Corporation Q1 2024 Earnings Call, Sai Wai Lam, Vice President and CFO, provided several insights and details regarding the company’s financial performance and strategies. Below is a detailed summary of his comments:

Financial Performance Overview

  • Revenue: Xiaomi reported a revenue of RMB 75.5 billion for Q1 2024, marking a 27% year-on-year growth.
  • Gross Profit Margin: The overall gross profit margin stood at 22.3%, representing a 2.8% year-on-year increase and a 1.1% quarter-on-quarter increase.
  • Smartphone Business: This segment accounted for approximately 61% of the total revenue and experienced business growth, maintaining the company’s position as the third-largest smartphone vendor globally for 15 consecutive quarters.
  • IoT Business: Revenue for IoT and lifestyle products reached RMB 20.4 billion, up 21% year-on-year. Gross margin for this segment reached a historical high of 19.9%.
  • Internet Services: The company reported RMB 8 billion in revenue for internet services, a 45% year-on-year increase, and a new quarterly high. Overseas internet services grew to RMB 2.5 billion, accounting for 31.2% of total internet services revenue.

Expense Management

  • Core Expenses: Excluding the RMB 2.5 billion investment, core expenses amounted to RMB 9.6 billion, with an expense ratio of 12.8%, down 0.7% year-on-year.
  • R&D Investment: R&D expenses increased by 24% to RMB 520 million.
  • Adjusted Net Profit: Adjusted net profit reached RMB 6.5 billion, up 100.8% year-on-year, setting a new record.

Cash Position

  • Cash Resources: By the end of March, Xiaomi had cash resources totaling RMB 127.3 billion.
  • Share Repurchases: Xiaomi has been actively repurchasing shares in the open market, having repurchased RMB 2.25 billion worth of shares, exceeding the total for the entire year of 2023.

Environmental, Social, and Governance (ESG)

  • ESG Report: Xiaomi released its ESG report in April, outlining several sustainability goals:
    • No later than 2030, a 30% reduction in emissions compared to a benchmark year.
    • By 2035, 100% use of renewable power in own operations.
    • By 2040, achieving carbon neutrality in own operations and 100% adoption of renewable resources.
  • Gender Diversity: Xiaomi appointed two female corporate VPs, Ms. Zhang Jianhui and Ms. Xu, highlighting the company’s commitment to gender diversity and professional management.

Q&A Session

  • Overseas Internet Business Growth: The growth in overseas internet business revenue was attributed to an increase in shipments, the addition of new customers, and improvements in converting users into paying customers. Average revenue per user (ARPU) for overseas users reached RMB 5.

EV Business

  • Gross Margin Target: Lei Jun previously announced a gross margin target of 5% to 10% for the EV business. Sai Wai Lam noted that the company needs more time to establish a more accurate gross margin figure, suggesting that it could be determined by June 2024. Factors affecting the gross margin include scale and component costs.
  • Q2 Disclosure: Sai Wai Lam mentioned that in the Q2 2024 earnings call, the company will provide more detailed and accurate disclosures regarding the EV business’s revenue and profitability, separating it from other product categories.

Sai Wai Lam’s comments provide a comprehensive overview of Xiaomi’s financial performance, strategic initiatives, and future outlook.

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