Key Takeaways:
- Price target lowered to HKD26.98 from HKD30.45, implies 33x 2026E PE
- Q1 EBIT forecast to miss consensus by 35% on higher R&D and memory costs
- Intense EV competition and AIoT headwinds cited as key risks
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Jefferies cuts Xiaomi target 11% on rising costs, EV competition
Jefferies cut its price target for Xiaomi Corp. (01810.HK) by over 11% to HKD26.98 ahead of its first-quarter results, citing rising costs and intensifying competition in the company's new electric vehicle business.
"The broker considered it premature to bottom-fish at this stage," Jefferies noted in a report released May 26, maintaining a 'Hold' rating on the stock as it faces pressures on multiple fronts.
The bank forecasts Xiaomi's first-quarter EBIT will come in 35% below market expectations, driven by negative operating leverage and elevated research and development expenses. Jefferies chopped its target price from HKD30.45, with the new target implying a 33x price-to-earnings ratio on 2026 estimates.
The downgrade sets a bearish tone for Xiaomi's earnings announcement, focusing on challenges to its core smartphone segment and its ambitious expansion into electric vehicles. The report highlights that a proliferation in memory costs is set to further squeeze gross margins and impact smartphone shipments.
EV Challenges Mount
Regarding the EV business, Jefferies noted that mounting competition in China's premium electric vehicle market makes product differentiation and sustained margin premiums harder for Xiaomi to achieve. The report also pointed to rising raw material and battery costs as significant headwinds. Without plans for a third factory, the bank sees potential downside risk to its 2027 shipment forecast of 900,000 units.
Core Business Headwinds
Xiaomi's traditional AIoT (Artificial Intelligence of Things) segment faces a high base effect from the previous year and the impact of fading subsidies, according to the report. This, combined with the pressure on the smartphone division from higher memory component costs, presents a challenging outlook for the company's established revenue streams.
The report suggests near-term headwinds may outweigh the long-term potential of Xiaomi's ecosystem strategy. Investors will be watching the upcoming Q1 earnings call on May 26 for management's response to these margin and competition concerns.
This article is for informational purposes only and does not constitute investment advice.
