Key Takeaways
CLSA slashed its price target on Xiaomi Corp. (01810.HK) to HKD41 from HKD45, forecasting a significant earnings decline in the first quarter of 2026 due to rising costs and slowing sales.
"Macro challenges will persist in 2026," CLSA said in its report, noting that Xiaomi will accelerate its premiumization strategy and overseas expansion to drive growth while continuing to invest in research and development and AI.
The brokerage expects total revenue to fall 10.7% year-over-year to RMB99.4 billion, with adjusted EBIT plunging 41% to RMB6.5 billion. Smartphone shipments are projected to drop 19% to 33.8 million units, hit by a 35% decrease in China.
The downgrade reflects pressure on profitability, even as the average selling price for smartphones is expected to rise about 8% to RMB1,308. CLSA also cut its adjusted net profit forecasts for 2026 and 2027 by 15% and 12%, respectively.
The report detailed a broad-based decline in smartphone shipments, which are forecast to fall 13% year-over-year to RMB44.3 billion in revenue terms. According to IDC data cited by CLSA, the 19% drop in global shipments was led by a 35% contraction in China, a 6% fall in India, and a 13% decrease in other regions.
CLSA attributes the sharp reduction to surging memory costs, which prompted Xiaomi to cut back on low-end, unprofitable models. While this is expected to lift the blended average selling price, the gross margin for smartphones is forecast to remain tight at around 9.7%.
Beyond smartphones, the company's AIoT (Artificial Intelligence of Things) sales were affected by a high comparison base from the previous year. The electric vehicle (EV) business also faced headwinds from reduced government subsidies and cooling consumer interest.
The price target reduction signals analyst concerns over Xiaomi's ability to navigate persistent macroeconomic headwinds and rising component costs. Investors will be closely watching the company's next earnings report to see if its premiumization strategy can successfully offset the volume decline in its legacy smartphone business.
This article is for informational purposes only and does not constitute investment advice.
