Core Viewpoint - The report from Credit Lyonnais indicates that SMIC's (00981) Q4 guidance is generally in line with market expectations, despite being a traditional off-season, with strong demand anticipated. The company's capacity utilization and wafer production are better than the Q4 guidance, leading to a forecast of stable or slightly increased capital expenditure in 2025, and a 5% to 22% upward revision of profit forecasts for 2025 to 2027, reflecting improved gross margin expectations. The target price for H-shares has been raised from HKD 58.8 to HKD 93.3, maintaining an "outperform" rating [1]. Group 1 - SMIC's Q3 performance exceeded expectations, with revenue increasing by 7.8% quarter-on-quarter to USD 2.38 billion, surpassing the guidance of 5% to 7% growth [1]. - The gross margin improved by 1.6 percentage points quarter-on-quarter to 22%, also exceeding the guidance of 18% to 20%, driven by increased capacity utilization at 95.8%, reduced production volatility, and product mix adjustments [1]. - The net profit for the last quarter grew by 29% year-on-year to USD 192 million, which was 6% above market expectations [1].

Core Viewpoint - The article discusses the impact of the storage "super cycle" on end-user demand and the outlook for domestic chip production trends in China, particularly focusing on the performance and projections of SMIC. Group 1: Financial Performance - SMIC reported a 7.8% quarter-on-quarter revenue growth in Q3 2025, with a gross margin of 22.0%, exceeding company guidance [1] - The company anticipates Q4 revenue to remain flat or grow by 2%, with a gross margin forecast of 18-20%, which is below Bloomberg consensus expectations [1] Group 2: Market Trends - The rapid growth in storage demand for AI applications, such as HBM and eSSD, has led to significant price increases in consumer-grade DRAM and NAND over the past few months [1] - Due to concerns over adequate storage supply, downstream customers in sectors like mobile and automotive are adopting a cautious approach in their 2026 production planning, which may impact the capacity utilization of SMIC's mobile-related process platforms [1] Group 3: Domestic Production Outlook - In Q3, revenue from the Chinese market grew by 11% quarter-on-quarter, increasing its share by 2.1 percentage points to 86%, indicating an accelerated trend towards domestic production in the supply chain [2] - The company is optimistic about the continued strong demand for domestic chip production in sectors such as home appliances and networking in 2026 [2] Group 4: Revenue Forecast Adjustments - The company has lowered its revenue forecasts for 2026 and 2027 by 4.8% and 3.1%, respectively, and reduced net profit forecasts for the same years by 3.0% and 3.6% [3] - After adjustments, the company expects total revenue of $10.81 billion in 2026, representing a 17% year-on-year growth [3] - SMIC is viewed as the only company in mainland China capable of large-scale production of advanced process technologies, which gives it strategic scarcity, and it is assigned a valuation of 4.7x 2026 EPB [3]

Core Viewpoint - SMIC's fourth-quarter revenue guidance indicates flat or 2% growth, reflecting cautious customer behavior in planning for the upcoming year [1] Group 1: Revenue Guidance - The fourth-quarter revenue guidance is expected to be flat or show a 2% increase, with no significant quarter-on-quarter leap [1] - This cautious outlook is attributed to customers adjusting shipment volumes in preparation for next year's plans [1] Group 2: Production Capacity - Despite the flat revenue guidance, the company's production lines are operating at a high capacity utilization rate of 95.8% in the third quarter, indicating strong demand and a supply-constrained situation [1] Group 3: Market Conditions - The smartphone market is experiencing a severe shortage of memory chips, leading to significant price increases, which raises concerns for customers about assembling complete devices [1] - In the networking and communication sector, customers are placing orders more cautiously in the fourth quarter, fearing excess inventory, while market orders are shifting to competitors [1]

Core Viewpoint - The storage chip sector in the A-share market is experiencing a resurgence, driven by price increases from major players like Samsung, which supports market momentum. Additionally, insights from SMIC's investor briefing reveal significant trends in the storage industry [2][3]. Group 1: Market Dynamics - There is a severe shortage of storage chips for mobile phones, leading to substantial price increases. SMIC reported a production capacity utilization rate of 95.8% in Q3, indicating a supply-demand imbalance [3]. - The cautious ordering behavior from clients in the network communication sector is contributing to a conservative outlook for Q4, despite a generally positive recovery in various markets such as consumer electronics and automotive [3][4]. - A 5% fluctuation in supply can lead to exponential price changes in the storage market, highlighting the sensitivity of prices to supply-demand dynamics [5]. Group 2: Inventory and Order Trends - The current tight supply of storage chips has stimulated a clear demand for inventory replenishment, resulting in increased orders, although the future trend remains uncertain [6]. - SMIC has observed three key dynamics: 1. Clients are increasing inventory for analog and power products to capture market share, while the industrial and automotive sectors are replenishing stocks to safe levels [7]. 2. There is a contradictory market sentiment where clients are inclined to stock up on storage chips for complete assembly but remain cautious about future supply uncertainties [7]. 3. SMIC has received a significant number of urgent orders for various products, including NOR/NAND Flash and MCUs, leading to a temporary decrease in the proportion of mobile business as non-urgent orders are postponed [7].

Core Viewpoint - The Hang Seng Index fell by 0.71% on November 17, with southbound capital totaling HKD 913.76 billion in trading volume, resulting in a net inflow of HKD 84.48 billion [1] Trading Activity Summary - Southbound trading included a total of HKD 351.89 billion from the Shenzhen Stock Connect and HKD 561.86 billion from the Shanghai Stock Connect, with net inflows of HKD 41.13 billion and HKD 43.35 billion respectively [1] - The most actively traded stock was Alibaba-W, with a total trading volume of HKD 101.70 billion, followed by the Tracker Fund of Hong Kong and SMIC, with trading volumes of HKD 39.03 billion and HKD 38.54 billion respectively [1][2] - The top net buying stocks included the Tracker Fund of Hong Kong with a net inflow of HKD 37.27 billion, Alibaba-W with HKD 20.71 billion, and Xiaomi Group-W with HKD 2.80 billion [1][2] Continuous Net Buying Stocks - Three stocks experienced continuous net buying for more than three days, with Xiaomi Group-W leading at 14 days, followed by Alibaba-W and Huahong Semiconductor at 3 days each [2] - The total net buying amounts during this period were HKD 98.07 billion for Xiaomi Group-W, HKD 57.02 billion for Alibaba-W, and HKD 1.81 billion for Huahong Semiconductor [2]

Market Overview - On November 17, the Hang Seng Index fell by 0.71%, closing at 26,384.28 points, while southbound funds through the Stock Connect recorded a net purchase of HKD 8.448 billion [1][3] - The total trading volume for the Stock Connect on the same day was HKD 91.376 billion, with a net purchase of HKD 8.448 billion [1] Trading Activity - In the Shanghai Stock Connect, the trading volume was HKD 56.186 billion with a net purchase of HKD 4.335 billion, while in the Shenzhen Stock Connect, the trading volume was HKD 35.189 billion with a net purchase of HKD 4.113 billion [1] - The most actively traded stock in the Shanghai Stock Connect was Alibaba-W, with a trading volume of HKD 6.484 billion, followed by the Tracker Fund of Hong Kong and SMIC, with trading volumes of HKD 3.356 billion and HKD 2.080 billion, respectively [1][2] Net Buying and Selling - In terms of net buying, the Tracker Fund of Hong Kong led with a net purchase of HKD 3.180 billion, despite its closing price dropping by 0.75% [1] - Tencent Holdings recorded the highest net selling amount of HKD 180 million, with its closing price also down by 0.70% [1] - In the Shenzhen Stock Connect, Alibaba-W again topped the trading volume with HKD 3.686 billion, and a net purchase of HKD 1.202 billion, closing flat [2]

Core Viewpoint - SMIC reports a high capacity utilization rate of 95.8% in Q3, indicating strong demand and a supply-constrained situation in its production lines [1] Group 1: Production and Demand - The company has a significant number of orders, leading to a supply-demand imbalance [1] - The guidance for Q4 does not show a substantial increase due to a severe shortage of memory components in the mobile market, which has resulted in rising prices [1] - Customers are cautious about future supply uncertainties, leading to a trend of increased inventory for memory components to ensure complete assembly of devices [1] Group 2: Impact on Business Operations - SMIC has taken on numerous urgent orders for analog and memory products, including NOR/NAND Flash and MCUs, and has postponed some non-urgent mobile orders to ensure timely delivery [1] - This shift has resulted in a temporary decrease in the proportion of mobile business [1] - The impact of memory supply issues is twofold: it boosts current orders but creates uncertainty for the upcoming year [1] Group 3: Market Dynamics - The industry is experiencing a supply gap, with expectations that high price levels will persist [1] - The verification cycles for NOR Flash, NAND Flash, and MCUs are lengthy, and the barriers to entry for new competitors are high, making it difficult for them to quickly replace existing suppliers [2]

Core Viewpoint - SMIC's production lines are operating at a high capacity utilization rate of 95.8% in Q3, indicating strong demand and a supply shortage situation [1] Group 1: Market Conditions - The smartphone market is currently facing a severe shortage of memory components, leading to significant price increases [1] - Customers are cautious about future supply uncertainties, resulting in a tendency to stockpile memory components to ensure complete assembly of devices [1] - The impact of memory supply issues is twofold: it boosts current orders but creates uncertainty for the upcoming quarter [1] Group 2: Product and Supply Dynamics - SMIC has taken on a large number of urgent orders for products such as NOR/NAND Flash and MCUs, leading to a temporary decrease in the proportion of mobile business [1] - The supply of NOR Flash, NAND Flash, and MCUs has long validation cycles and high barriers to entry, making it difficult for new entrants to quickly replace existing suppliers [2] - Even with new competitors, it takes at least 16 months from initial testing to mass production, ensuring the stability of current suppliers' market positions [2] Group 3: Pricing and Supply Outlook - The industry is currently experiencing a supply gap, and a 5% fluctuation in memory supply could significantly impact prices [1] - High pricing trends are expected to persist due to ongoing supply constraints in the market [1]

Core Viewpoint - SMIC (688981.SH) is experiencing high demand with a capacity utilization rate of 95.8% in Q3, indicating a supply-demand imbalance in its production lines [1] Group 1: Production and Capacity - The company has a full production line, with significant orders leading to a high capacity utilization rate [1] - The guidance for Q4 does not show a significant increase due to a severe shortage of memory in the mobile market, causing concerns among customers about the assembly of complete devices [1] Group 2: Market Dynamics - Customers are currently inclined to stockpile memory to ensure complete device assembly, but there is a general caution regarding supply uncertainties for Q1 of the following year [1] - The company has taken on a large number of urgent orders for analog, memory including NOR/NAND Flash, and MCU, leading to a temporary decrease in the proportion of mobile business as some non-urgent orders are postponed [1] Group 3: Pricing and Supply Outlook - The impact of memory supply is twofold: it boosts current orders but creates uncertainty for the following year [1] - A supply shortage or surplus of just 5% in the memory market could significantly affect prices, with the current industry facing a supply gap and high price levels expected to persist [1] Group 4: Market Stability - Products like NOR Flash, NAND Flash, and MCU have long validation cycles and high barriers to entry, making it difficult for new entrants to quickly replace existing suppliers [2] - Even with new manufacturers attempting to enter the market, it takes at least 16 months from initial testing to mass production, ensuring the stability of current suppliers' market positions [2]

Investment Rating - The report maintains a "Buy" rating for the company, indicating a strong performance relative to the market [7][8]. Core Insights - The company reported Q3 revenue of $2.382 billion, a year-over-year increase of 9.7% and a quarter-over-quarter increase of 7.8%, exceeding guidance [4][7]. - The net profit attributable to shareholders for Q3 was $192 million, reflecting a year-over-year growth of 28.9% and a quarter-over-quarter growth of 44.7% [4][7]. - The gross margin for Q3 was 22%, which is above the guidance range of 18%-20% [4][7]. - For the first three quarters of 2025, total revenue reached $6.838 billion, a year-over-year increase of 17.4%, with a gross margin of 21.6%, up 5.3 percentage points year-over-year [4][7]. Financial Data and Profit Forecast - The company expects total revenue for 2025 to be $6.6755 billion, with a year-over-year growth rate of 15.5% [6]. - The net profit attributable to shareholders is projected to be $512.3 million in 2025, representing a year-over-year growth of 38.5% [6]. - The earnings per share (EPS) is forecasted to be $0.64 for 2025, with a gross margin of 21.9% [6]. - The company’s return on equity (ROE) is expected to improve to 3.4% in 2025 [6]. Operational Performance - The overall utilization rate for Q3 was 95.8%, with a quarter-over-quarter increase of 3.3 percentage points [7]. - The average selling price (ASP) for wafers increased by 3.1% quarter-over-quarter to $953 per wafer [7]. - The company’s 12-inch wafer production capacity increased, contributing significantly to revenue [7]. - The revenue contribution from the industrial and automotive sectors rose, with a quarter-over-quarter increase of 21% [7]. Capital Expenditure and Guidance - The company’s capital expenditure for Q3 was $2.394 billion, reflecting a quarter-over-quarter increase [7]. - For Q4, the company expects revenue to remain stable with a quarter-over-quarter growth of 0% to 2% and a gross margin between 18% and 20% [7].