Morgan Stanley reiterated its Overweight rating on Xiaomi Corp. (01810.HK), forecasting the company’s smartphone gross margin will beat expectations in the first quarter despite a 19% annual decline in shipments.
"The drop in shipments was mainly due to the company's product mix optimization strategy," Morgan Stanley said in a research report, adding that a proactive reduction in low-end products is set to lift the average selling price (ASP) to a record high.
The bank's outlook counters general market expectations that surging memory costs would pressure Xiaomi's first-quarter margins. The report maintained a price target of HKD 45 on the Hong Kong-listed shares.
Morgan Stanley's note reframes the narrative around Xiaomi's 33.8 million unit shipment figure for the first quarter. While the 19% year-over-year drop appears steep compared to Android peers, the bank views it as evidence of a successful strategic pivot toward higher-value devices rather than a sign of weakening demand.
The report suggests investors should look past the headline shipment decline and focus on profitability. By passing on cost pressures and improving its product mix, Xiaomi is positioned for a stronger margin performance than the market anticipates.
This focus on profitability over volume will be a key point for investors. The upcoming official first-quarter earnings report will be the next major catalyst, as the market looks for confirmation of the record-high average selling prices and margin resilience that Morgan Stanley predicts.
This article is for informational purposes only and does not constitute investment advice.
