Xiaomi Corporation, Q3 2024 Earnings Call, Nov 18, 2024 - SEHK:1810

SEHK:1810

**- Anita Chan welcomed participants to Xiaomi Corporation's third quarter results announcement investor conference call and audio webcast

• She reminded attendees that the call includes forward-looking statements, which are subject to risks and uncertainties

• Anita introduced the executives joining the call: Mr. Lu Weibing, Partner and President; Mr. Alain Lam, VP and CFO of Xiaomi Corporation

• She noted that Mr. Lu would discuss strategies and business updates, followed by Mr. Lam reviewing the financial performance, and then the session would open for Q&A**

**- Company Performance and Strategy: Weibing Lu highlighted that Xiaomi has enhanced its capabilities to tackle external uncertainties, showing good profit margins and a solid foundation for future development. The company's focus on premiumization, home appliances, and IoT business has driven stable growth despite fierce competition and higher supply chain costs.

• Premiumization: Xiaomi has invested heavily in technology, particularly in the HyperOS 2, with a team of over 3,000 engineers. The Xiaomi 15 series, priced between CNY 4,000 to CNY 4,499, sold faster than the Xiaomi 14 series. Xiaomi's market share in the CNY 4,000 to CNY 5,000 price range is #1 in Mainland China, generating CNY 47.5 billion in revenue, up 13.9%.

• Home Appliances and IoT Business: Total revenue from home appliances and IoT business reached CNY 26.1 billion, up 20%. Xiaomi has shifted to self-research and development, launching new products with innovative features. Aircon, fridge, and washer sales showed significant growth, with aircon deliveries up 55%, fridges up 20%, and washers up 50%.

• Vehicle Business: Xiaomi's vehicle business, particularly the SU7 series, saw strong performance with 40,000 deliveries in Q3, exceeding 20,000 units in October alone. The company completed production of 100,000 units in just 230 days, with a target of 130,000 deliveries for 2024. The gross margin for the vehicle segment is 17.1%, up 1.7 percentage points.

• Global Expansion: Xiaomi has expanded its brand and model presence overseas, ranking #3 in 52 countries for handset deliveries. The company has 130 shops and is focusing on localized operations and brand influence.

• AI and Future Growth: AI is seen as a key driver for future growth, aiming to provide a seamless user experience across devices. Xiaomi is developing AIOS to integrate vehicles, homes, and other smart devices.

• Three Growth Curves: Xiaomi is focusing on three main areas: mature segments like handsets, tablets, and wearables; traditional but innovative segments like air conditioners, fridges, and washers; and emerging segments like vehicles, which offer significant potential.

• Financial Performance: Total revenue for Q3 was CNY 92.5 billion, up 30.5%, with a consolidated gross margin of 20.4%. The company's net profit after adjustment was CNY 6.3 billion, up 4.4%, and cash reserves reached CNY 151.6 billion.

• Retail Expansion: Xiaomi plans to expand its offline retail network, aiming to exceed 15,000 shops by the end of the year and reach 20,000 by 2025. The company is also opening large shops in prime locations, attracting significant foot traffic.

• ESG and Corporate Responsibility: Xiaomi has been recognized for its ESG efforts, joining the top ESG 50 in China and being rated BBB by MSCI. The Xiaomi Foundation has donated CNY 650 million to date, focusing on technological innovation, talent nurturing, and social assistance.**

** Key Points Mentioned by Sai Wai Lam**

• Q3 Financial Performance Overview

  • Total revenue for Q3: CNY 92.5 billion, up 30.5%
  • Revenue from Mainland China: 56.6%, overseas portion: 43.4%
  • Consolidated gross margin: 20.4%

• Handset IoT Segment

  • Revenue: CNY 82.8 billion, up 16.8%
  • Gross margin: 20.8%
  • Smart handset revenue: CNY 47.5 billion, up 13.9%
  • Delivery level: 43.1 million sets, up 3.1%
  • Market share: 13.8%, enhanced to 14.7% in Mainland China
  • High-end smart handset delivery in Mainland China: 21.3% of total, up 3.9 percentage points

• IoT and Smart Home Appliance Segment

  • Revenue: CNY 26.1 billion, up 26.3%
  • Gross margin: 20.8%, a historical high
  • Core IoT products: Aircon delivery up 55%, fridges up 20%, washers up 50%
  • Tablets: Ranked #5 globally, 55% growth in delivery volumes

• Internet Services

  • Global active users: 686 million, up 10%
  • Active users in Mainland China: 168 million, up 10.6%
  • Segment revenue: CNY 8.5 billion, up 9.1%
  • Offshore Internet services revenue: CNY 2.7 billion, up 18.3%

• Innovative Business (Smart Vehicles)

  • Revenue: CNY 9.7 billion
  • Smart Vehicles sales revenue: CNY 9.5 billion
  • Gross margin: 17.1%, up 1.7 percentage points
  • Xiaomi SU7 Series total delivery: 39,790 units, average selling price: CNY 230,650

• Expenses and Profit

  • Total expenses: CNY 13.7 billion
  • Core business expenses: CNY 10.3 billion, ratio: 12.4%, down 0.4 points
  • Net profit after adjustment: CNY 6.3 billion, up 4.4%
  • Net losses: CNY 1.5 billion, down 16.6%
  • Core business profit: CNY 7.7 billion, cumulative for first 3 quarters: CNY 24.4 billion

• Cash Reserves and Shareholder Returns

  • Cash reserves: CNY 151.6 billion, up 18.7%
  • Adjusted cash flow: CNY 9.6 billion
  • Stock buyback: HKD 3.71 billion

• ESG and Corporate Governance

  • Chosen for top ESG 50 in China 2024

  • Selected as best employer in China 2024

  • MSCI ESG rating upgraded from BB to BBB

  • Xiaomi Foundation: Donated CNY 650 million, planned amount: CNY 1.9 billion