Investment Rating - The investment rating for the company is downgraded to Neutral [1][6][38] Core Views - The stock price may have fully reflected the upside potential, leading to the downgrade in rating. Despite a positive outlook on the domestic substitution trend in wafer foundry and the company's leading position in the industry, investors should consider high capital expenditures, downstream demand uncertainties, and increased competition in mature processes [6][7][9] - The target price is raised to HKD 48, reflecting a 2.25x price-to-book ratio for 2025, accounting for improved market liquidity and a reassessment of technology stocks [6][9][12] Financial Overview - Revenue projections for the company are as follows: - 2023: USD 6,322 million - 2024: USD 8,030 million - 2025E: USD 9,414 million (up from previous estimate of USD 9,094 million) - 2026E: USD 10,291 million - 2027E: USD 11,238 million [5][20][40] - Net profit estimates are: - 2023: USD 903 million - 2024: USD 493 million - 2025E: USD 1,055 million - 2026E: USD 1,348 million - 2027E: USD 1,778 million [5][20][40] - The company’s gross margin is projected to improve to 20.9% in 2025, up from 20.1% previously estimated [20][40] Market Performance - The stock has increased approximately 200% since the second half of 2024, driven by improved fundamentals and increased market liquidity [6][7][9] - The company’s market capitalization is approximately HKD 287,213 million, with a 52-week high of HKD 47.95 and a low of HKD 14.02 [3][6] Capital Expenditure - The company has guided for capital expenditures of USD 7.33 billion in 2024, with expectations to maintain similar levels in 2025, which is higher than previous market expectations [6][7][9] - The capital expenditure as a percentage of revenue is projected to remain high, indicating a focus on expansion despite potential impacts on gross margins [6][7][9] Valuation Metrics - The company’s price-to-book ratio is currently at 2.2x, which is significantly above the historical average of 1.0x, indicating a high valuation relative to its peers [6][9][12] - The relative premium of the A-shares over H-shares is currently at 142%, which is at the historical lower bound compared to an average of 199% [6][9][19]

Investment Rating - The report downgrades the investment rating for the company to Neutral from Buy, indicating that the stock price may have fully reflected the potential upside [6][7][19]. Core Views - The report highlights that while the company's performance may continue to improve, the stock price has already anticipated these changes. The long-term outlook remains positive due to the trend of domestic substitution in the wafer foundry industry and the company's leading position in the market [6][7][19]. - The report emphasizes the high capital expenditure and its potential impact on profit margins, as well as uncertainties in downstream demand and increased competition in mature processes affecting product pricing [6][7][19]. Financial Overview - Revenue projections for the company are as follows: - 2023: $6,322 million - 2024: $8,030 million - 2025E: $9,414 million - 2026E: $10,291 million - 2027E: $11,238 million - Year-on-year growth rates are projected at -13.1% for 2023 to 2024, 27.0% for 2024 to 2025, and 17.2% for 2025 to 2026 [5][39]. - Net profit estimates are: - 2023: $903 million - 2024: $493 million - 2025E: $1,055 million - 2026E: $1,348 million - 2027E: $1,778 million - The report notes a significant drop in earnings per share (EPS) for 2024, with a recovery expected in subsequent years [5][39]. Market Performance - The company's stock price has increased approximately 200% since the second half of 2024, driven by improved fundamentals and increased market liquidity [6][7][19]. - The target price for the company's stock is raised to HKD 48, reflecting a price-to-book (P/B) ratio of 2.25 times for 2025, which is considered high compared to historical averages [6][7][19]. Capital Expenditure - The company has guided for capital expenditures of $7.33 billion for 2024, with expectations for 2025 to remain at similar levels, which is higher than previous market expectations [6][7][19]. - The report indicates that the company plans to expand its 12-inch wafer capacity by 50,000 pieces annually, despite the high capital expenditure [6][7][19]. Valuation Comparison - The report compares the company's valuation metrics with peers, noting that the company's P/B ratio is above the industry average, indicating a premium valuation despite lower return on equity (ROE) compared to competitors [6][7][19]. - The report also highlights that the premium of the company's A-shares over H-shares is currently at 142%, which is at the historical lower end of the range [6][7][19].

Financial Data and Key Metrics Changes - In Q4 2024, the company reported sales revenue of $2.207 billion, a sequential increase of 1.7% [2] - The gross margin for Q4 2024 was 22.6%, up 2.1 percentage points [2] - For the full year 2024, sales revenue reached $8.03 billion, a year-over-year increase of 27% [5][6] - The gross margin for 2024 was 18%, down 1.3 percentage points year-over-year due to increased depreciation [5][6] - Capital expenditure for 2024 was $7.326 billion [2][10] Business Line Data and Key Metrics Changes - Revenue from 12-inch wafers accounted for 77% of total wafer revenue, with a year-over-year increase of 35% [6][7] - Revenue from 8-inch wafers accounted for 23% of total wafer revenue, also showing growth [7] - Revenue by application showed significant increases in consumer electronics, smartphones, and automotive sectors [6][8] Market Data and Key Metrics Changes - Revenue distribution by region: China (85%), America (12%), and Eurasia (3%) [6][7] - Revenue from Chinese customers increased by 34% year-over-year, driven by localized manufacturing demand [7] Company Strategy and Development Direction - The company is focusing on enhancing supply chain security and reliability in response to geopolitical changes [12][13] - Continuous high investment is aimed at meeting the growing demand for localized manufacturing [12][13] - The company plans to maintain capital expenditure at a similar level to the previous year, around $7.5 billion [12][21] Management's Comments on Operating Environment and Future Outlook - The semiconductor market is showing signs of recovery, with inventory levels returning to healthy status [5][11] - Management expressed concerns about external uncertainties in the second half of 2025, alongside intensifying competition [11][12] - The company anticipates a revenue growth rate higher than the industry average for 2025 [12][13] Other Important Information - The company achieved a monthly capacity of 948,000 standard logic 8-inch equivalent wafers by the end of 2024, with an annualized capacity utilization rate of 85.6% [10] - The company is actively expanding its technology platforms to enhance product performance and meet customer needs [8][9] Q&A Session Summary Question: What were the reasons for the ASP increase in Q4? - The ASP increase was attributed to a higher proportion of 12-inch wafers and a reduction in lower-priced commodities during the seasonal downturn [15][16] Question: How does the company view the impact of consumer stimulus policies? - Management noted that stimulus policies could lead to a 15% to 20% increase in demand, particularly in consumer electronics [34][35] Question: What is the outlook for depreciation and gross margin in 2025? - Depreciation is expected to increase by around 20% in 2025, which will continue to pressure gross margins [33][34] Question: How does the company plan to manage pricing pressures? - The company aims to enhance core competitiveness through technology advancements and strategic customer partnerships, maintaining a consistent pricing strategy [13][14]

Financial Performance - In Q4 2024, the company's sales revenue was $2,207.3 million, a 1.7% increase from Q3 2024 and a 31.5% increase from Q4 2023[5]. - The gross profit for Q4 2024 was $499.0 million, up 12.3% from Q3 2024 and up 81.5% from Q4 2023[5]. - The gross margin for Q4 2024 was 22.6%, compared to 20.5% in Q3 2024 and 16.4% in Q4 2023[5]. - The unaudited full-year sales revenue for 2024 was $8,029.9 million, a 27% increase compared to $6,321.6 million in 2023[5]. - The unaudited profit attributable to shareholders for 2024 was $492.7 million, a decrease of 45.4% from $902.5 million in 2023, primarily due to declines in investment and financial income[5]. - The net profit for Q4 2024 was $270.9 million, a 21.4% increase from Q3 2024 and a 14.2% increase from Q4 2023[16]. - The company reported a net income of $270.9 million for Q4 2024, with an EBITDA of $1,279.9 million, reflecting a profit margin of 12.3%[26]. - The net profit for the three months ending December 31, 2024, was $270,946, compared to $223,270 for the previous quarter, representing a growth of approximately 21.3%[44]. - Net profit for Q4 2024 was $270,946 thousand, compared to $223,270 thousand in Q3 2024, representing a growth of 21.3%[35]. Sales and Shipment - Q4 2024 wafer sales totaled 1,991,761 units, a decrease of 6.1% from Q3 2024, but an increase of 18.9% year-over-year[20]. - The company’s revenue from the China region accounted for 89.1% of total revenue in Q4 2024, up from 86.4% in Q3 2024[18]. Capital Expenditures and Utilization - The company reported a capital expenditure of $7,333 million for 2024, with an average capacity utilization rate of 85.6%[7]. - Q4 2024 capital expenditures amounted to $1,660.1 million, significantly higher than Q3 2024's $1,178.8 million, with total capital expenditures for 2024 projected at approximately $7.33 billion[21]. - The total shipment volume for 2024 exceeded 8 million wafers, with an end-of-year capacity of 948,000 8-inch equivalent wafers per month[7]. Cash Flow and Liquidity - Cash and cash equivalents increased to $6,364,189 thousand in Q4 2024 from $3,651,385 thousand in Q3 2024, representing a growth of 74%[30]. - Operating cash flow net income for Q4 2024 was $1,449,842 thousand, up from $1,236,416 thousand in Q3 2024, an increase of 17.2%[32]. - The cash ratio improved to 0.7 in Q4 2024, compared to 0.5 in Q3 2024, indicating better liquidity management[27][28]. - The net cash generated from operating activities increased to $1,449,842 from $1,236,416, reflecting a rise of about 17.2%[44]. - The net cash used in investing activities improved to $(207,300) from $(1,345,115), showing a reduction in cash outflow by about 84.6%[44]. - The company reported a net cash inflow from financing activities of $1,614,792, compared to a net cash outflow of $(97,009) in the previous quarter[44]. Debt and Equity - Total debt to equity ratio improved to 36.4% in Q4 2024 from 33.1% in Q3 2024, indicating a stronger capital structure[30]. - The company reported a net debt of $(3,367,023) thousand in Q4 2024, compared to $(2,237,335) thousand in Q3 2024, indicating a decrease in net debt[30]. - Borrowings increased significantly to $1,658,024 from $127,683, marking a substantial rise of approximately 1202.5%[44]. Research and Development - Research and development expenses increased to $217,035 thousand in Q4 2024 from $179,386 thousand in Q3 2024, a rise of 21%[35]. Other Income and Expenses - Other income for Q4 2024 was $140.8 million, a 92.9% increase from Q3 2024's $73.0 million[24]. - Q4 2024 operating expenses were $284.5 million, up 3.7% from Q3 2024, primarily due to increased expenses related to new plant operations[23].

Investment Rating - The report assigns a "Buy" rating to the company with a target price of HKD 32.00, indicating a potential upside of 19.63% from the current stock price of HKD 26.75 [1][3]. Core Insights - The company's revenue for Q3 2024 reached USD 2.17 billion, representing a year-on-year growth of 34.0% and a quarter-on-quarter increase of 14.2%, aligning with market expectations [1]. - The production capacity utilization rate has improved to 90.4%, up 13.3 percentage points year-on-year and 5.2 percentage points quarter-on-quarter [1]. - The average selling price (ASP) of wafers reached USD 966, showing a slight year-on-year increase of 0.5% and a quarter-on-quarter rise of 15.5% [1]. - The company anticipates a revenue increase of 0%-2% for Q4 2024, projecting revenue between USD 2.17 billion and USD 2.21 billion, which is above market consensus [1]. - The AI sector is expected to be a major growth driver in the coming year, with domestic substitution demand gradually being released [1]. Summary by Sections Financial Performance - Q3 2024 operating profit was USD 170 million, a year-on-year increase of 94.4%, while net profit attributable to shareholders grew by 58.3% to USD 150 million, with a net profit margin of 6.9% [1]. - The company’s gross margin improved by 6.6 percentage points to 20.5% quarter-on-quarter [1]. - The projected revenue for 2025 is expected to grow by 28.1% year-on-year, reaching USD 8.1 billion [1]. Capacity and Demand - The company plans to add an average of 50,000 pieces of 12-inch wafer capacity annually, with new orders primarily coming from AI edge products [1]. - The total monthly capacity is expected to reach 920,000 equivalent 8-inch wafers by 2025 [1]. Market Position - The company currently holds a 5.5% share in the global wafer foundry market, which is projected to increase to 8.0% by the end of the year [1]. - The report highlights that one-third of the supply chain is expected to complete domestic substitution in the long term [1].

Investment Rating - The report maintains a "Buy" rating for the company, reflecting confidence in its growth prospects and market position [3][4] Core Views - The company achieved a record high quarterly revenue of $2.171 billion in Q3 2024, marking a 34% YoY increase and a 14.2% QoQ growth, surpassing the $2 billion mark for the first time [1] - Gross margin improved to 20.5% in Q3 2024, up 0.7 pct YoY and 6.6 pcts QoQ, within the guidance range of 18%-20% [1] - Net income attributable to shareholders reached $149 million in Q3 2024, a 58.3% YoY increase but a 9.6% QoQ decline, below the FactSet consensus estimate of $255 million [1] - The company provided Q4 2024 revenue guidance of $2.171-$2.214 billion, slightly above the FactSet consensus estimate of $2.137 billion [1] Financial Performance - The company's wafer production reached 884,000 wafers per month in Q3 2024, an 11% YoY and 6% QoQ increase, with a capacity utilization rate of 90.4% [2] - 12-inch wafer revenue grew significantly to $1.609 billion in Q3 2024, up 47.3% YoY and 23.8% QoQ, driving overall average price improvements [2] - The company aims to achieve a monthly production capacity of 900,000 8-inch equivalent wafers by the end of 2024 [2] Market and Industry Outlook - The non-AI foundry market is expected to grow by 4%-9% in 2025, with wafer shipments projected to increase by double digits [5] - The company is well-positioned to benefit from the expansion of AI applications into edge devices such as smartphones and IoT, leveraging its BCD and NPU products [5] Financial Projections - Revenue is projected to grow to $8.015 billion in 2024, $9.348 billion in 2025, and $10.202 billion in 2026, with YoY growth rates of 26.8%, 16.6%, and 9.1% respectively [4] - Net income attributable to shareholders is expected to be $584 million in 2024, $820 million in 2025, and $1.123 billion in 2026, with significant YoY growth in 2025 and 2026 [4] - Gross margin is forecasted to improve from 16.7% in 2024 to 22.3% in 2026, reflecting operational efficiency and product mix optimization [4]

Investment Rating - The report maintains an "Outperform" rating for the company [3][11]. Core Views - The company achieved a record high revenue of $2.17 billion in Q3 2024, with a year-over-year increase of 34% and a quarter-over-quarter increase of 14% [1]. - The gross margin for Q3 2024 was 20.5%, exceeding the guidance upper limit of 20% [1]. - The company expects Q4 2024 revenue to grow by 0%-2% quarter-over-quarter, with an annual revenue forecast of approximately $8 billion for 2024 [1]. - The utilization rate of production capacity increased by 5.2 percentage points quarter-over-quarter, reaching 90.4% [1]. - The average selling price (ASP) for 8-inch wafers rose to $966, reflecting a year-over-year increase of 1% and a quarter-over-quarter increase of 15% [1]. Financial Summary - Revenue for 2024 is projected at $8.01 billion, with a year-over-year growth of 26.8% [2]. - Net profit for 2024 is estimated at $509 million, a decrease of 43.7% compared to 2023 [2]. - The company’s capital expenditure in Q3 2024 was $1.179 billion, a significant decrease of 44.8% year-over-year [1]. - The company’s revenue composition shows that 12-inch wafers contributed 78.5% to the total wafer revenue [1]. Revenue Breakdown - In Q3 2024, revenue from consumer electronics, industrial, and automotive sectors grew year-over-year by 145.4%, 33.5%, and 17.9% respectively [1]. - The revenue from China accounted for 86.4% of total revenue in Q3 2024, indicating an increase both year-over-year and quarter-over-quarter [1].

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Insights - The company's gross margin has consistently exceeded expectations, indicating an improvement in its process competitiveness [1] - The reduction in government subsidies has led to a downward revision of the net profit forecast for 2024 from $620 million to $540 million [2] - The company is expected to benefit from the upgrade of products by domestic IC design clients, which may enhance its profitability [2] Financial Performance Summary - In Q3 2024, the company reported revenue of $2.17 billion, a quarter-on-quarter increase of 14.2%, aligning with company guidance and Bloomberg consensus [3] - The gross margin for Q3 2024 was 20.5%, surpassing both company guidance and Bloomberg consensus, primarily due to improved capacity utilization and product mix [3] - The net profit for Q3 2024 was $149 million, which was below Bloomberg consensus expectations due to reduced government subsidies [3] Future Guidance - The company has guided for Q4 2024 revenue to grow by 0%-2%, which is above Bloomberg consensus expectations [4] - The gross margin guidance for Q4 2024 is set at 18%-20%, in line with market expectations [4] - The company's revenue forecast for 2024 is $8.017 billion, reflecting a year-on-year growth of 26.8% [4]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 32.00, indicating a potential upside of 12.1% from the current closing price of HKD 28.55 [1][3][8]. Core Insights - The company's 3Q24 performance showed continued improvement, with revenue reaching USD 2.171 billion, a historical high, driven by increased demand in consumer electronics and higher product prices. The gross margin was 20.5%, exceeding expectations [1][2]. - The management's guidance for 4Q24 indicates revenue growth of 0-2% year-on-year and a gross margin of 18-20%, slightly above previous forecasts [1][3]. - The company is progressing steadily with its capacity expansion plans, expecting to add 30,000 12-inch wafers in 2023/24 and a slower pace in 2025, aligning with market demand recovery in the semiconductor sector [2][3]. Financial Summary - For 2024, the revenue forecast has been slightly adjusted to USD 8.017 billion with a gross margin of 17%. The 2025 revenue is projected at USD 9.094 billion with a gross margin of 20.1% [3][9]. - The net profit for 2024 is estimated at USD 664 million, with a significant increase expected in 2025 to USD 1.028 billion [5][9]. - The company’s capital expenditures for 2024 have been revised down to USD 7.67 billion, with expectations of a decrease in capital spending in the second half of 2024 [1][3]. Market Position - The company has a market capitalization of approximately HKD 170.9 billion and has shown a year-to-date price change of 43.76% [4][9]. - The stock has a 52-week high of HKD 33.30 and a low of HKD 14.02, indicating significant volatility and potential for growth [4][9]. Performance Metrics - The gross margin for 3Q24 was reported at 20.5%, a 0.6 percentage point increase year-on-year, while the net profit margin was 6.9% [6][9]. - The company’s earnings per share (EPS) for 2024 is projected at USD 0.65, with a recovery expected in subsequent years [5][9]. Capacity and Demand Outlook - The management anticipates a double-digit growth in wafer shipments for 2025, primarily driven by the recovery in consumer electronics, smartphones, and personal computers [2][3]. - Despite a slow recovery in industrial and automotive sectors, the company plans to invest in power and analog devices to meet customer demand, including from new energy vehicle manufacturers [2][3].

Financial Performance and Key Metrics - Revenue for Q3 2024 was $2.17 billion, up 14.2% sequentially [2] - Gross margin improved to 20.5%, up 6.6 percentage points sequentially [2] - Operating profit was $170 million, with EBITDA at $1.157 billion and an EBITDA margin of 53.3% [2] - Profit attributable to the company was $149 million [2] - Total assets stood at $47.2 billion, with $12.6 billion in cash and total liabilities of $15.8 billion [2][3] - Debt-to-equity ratio was 33.1%, and net debt-to-equity ratio was -7.1% [2][3] - Cash flow from operations was $1.236 billion, while cash used in investing and financing activities was $1.345 billion and $97 million, respectively [3] Business Line Performance - Wafer revenue accounted for 94% of total revenue, with other revenue making up 6% [6] - By application, smartphone, computer & tablet, consumer electronics, connectivity & IoT, and industrial & automotive accounted for 25%, 16%, 43%, 8%, and 8% of wafer revenue, respectively [6] - 12-inch wafer revenue increased to 78.5% of total wafer revenue, while 8-inch wafer revenue decreased to 21.5% due to some shipments being pulled into Q2 [6][7] Market Performance - Revenue by region: China (86%), America (11%), and Eurasia (3%) [5][6] - Overseas revenue decreased by 6 percentage points sequentially due to geopolitical considerations, while revenue from Chinese customers increased by 6 percentage points [6][7] Strategic Direction and Industry Competition - The company added 21,000 12-inch wafer monthly capacity in Q3, which was quickly put into production, improving product mix and increasing blended ASP [4][5] - The company is accelerating capacity deployment to support the automotive, industrial, and new energy markets [9] - The company is focusing on local-for-local strategies, particularly in China, to meet the growing demand for localization [6][7] Management Commentary on Operating Environment and Future Outlook - Q4 2024 revenue is expected to be flat to up 2% sequentially, with a gross margin between 18% and 20% [3][7] - Full-year 2024 revenue is expected to be around $8 billion, with a growth rate of approximately 27%, better than the industry average [9] - The company expects to release around 30,000 12-inch wafer monthly capacity in Q4, but verification of new capacity will take time [8][9] Other Important Information - The company's overall utilization rate increased to 90.4% in Q3, up 5.2 percentage points sequentially [5] - The company is focusing on product mix optimization to improve blended ASP and maintain stable revenue and gross margins in Q4 [8] Q&A Session Summary Question: Outlook for 2025 and opportunities in local substitution - The company expects growth in 2025, particularly in AI, with revenue growth in the range of 4% to 9% excluding AI and advanced processes [12][13] - Key growth areas include mobile, smartphone, computer & tablet, consumer electronics, connectivity & IoT, and industrial & automotive [13][14] Question: Capacity expansion and pricing pressure in mature nodes - New capacity announcements have decreased, and the company expects slower growth in 2025 compared to 2024 [16][17] - Pricing pressure is expected due to oversupply in the industry, particularly in power discrete devices [17][18] Question: Capital expenditure and capacity release plans for 2025 - The company has not announced new projects and is focusing on completing existing projects in Shanghai, Beijing, Tianjin, Lingang, and Shenzhen [20][21] - The company is leveraging existing capacity for power devices and does not expect significant new investments for this segment [21][22] Question: Demand for BCD process and industry outlook - The company has strong capabilities in BCD and expects continued growth due to increasing demand for power management in AI and IoT applications [36][37] - The shift to 48V systems in automotive and industrial applications is driving demand for higher-quality BCD processes [37][38] Question: Impact of AI on the semiconductor industry - AI is expected to drive significant growth in the semiconductor industry, benefiting both direct and indirect players [34][35] - The company is well-positioned to capture opportunities in AIoT and edge computing, which do not require advanced nodes [35][36]