【1810 Major Bank Report】Xiaomi's Target Price Cut 26% to 37 Yuan by Bank of Communications International, Rating Downgraded to Neutral

China Merchants Bank International lowers Xiaomi Group (01810) target price by 26% from HKD 50 to HKD 37, and downgrades investment rating from “Buy” to “Neutral.” The report suggests that rising supply chain costs may put pressure on Xiaomi’s smartphone business going forward.

Rising raw material prices may impact Xiaomi’s smartphone revenue and gross margin this year

China Merchants Bank International’s report states that the increase in raw material prices, such as storage components, may continue to affect revenue and gross margins of the smartphone business in Q4 2025 and 2026. According to data from inSpectrum Tech Inc, the average contract prices for DRAM and NAND surged over 200% year-over-year in Q4 last year, and this year, DRAM and NAND prices have continued to grow by over 80% month-over-month. The bank believes that the supply-demand imbalance in the storage market will persist into the first quarter of 2027, which could increase smartphone costs, especially for manufacturers with lower margins. Considering the risk of unexpected increases in storage costs, smartphone makers may pass some costs through price hikes, but this could also dampen end-user demand. The bank has lowered its revenue forecasts for Xiaomi’s smartphone business in 2025 and 2026 by 6% and 17%, respectively, and has reduced its gross margin forecasts for these years to 10.9% and 6.8%, down 0.4 and 2.6 percentage points from previous estimates.

China Merchants Bank International believes that this year, the focus of Xiaomi’s automotive business may shift from supply-side to demand-side, such as order trends for the 2026 SU7 facelift and new models. It is expected that Xiaomi will sell 559,000 vehicles in 2026; revenue from innovative businesses like smart electric vehicles and AI is forecasted to reach RMB 104 billion and RMB 143.6 billion in 2025 and 2026, respectively, while maintaining a positive operating profit for the full year of 2025.

Overall revenue outlook revised downward

China Merchants Bank International states that, due to the impact of rising storage prices on the smartphone business and increased competition in the automotive sector, it has lowered its revenue forecasts for 2025 and 2026 to RMB 4.523 trillion and RMB 4.925 trillion, representing decreases of 3% and 8%. It has also cut its adjusted EPS forecasts for 2025 and 2026 by 10% and 12%, to RMB 1.49 and RMB 1.536.