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]

Financial Performance - For Q3 2024, the company's revenue reached $2,171.2 million, a 14.2% increase from Q2 2024's $1,901.3 million and a 34.0% increase from Q3 2023's $1,620.6 million[10] - Gross profit for Q3 2024 was $444.2 million, up 67.5% from Q2 2024's $265.1 million and up 38.1% from Q3 2023's $321.6 million[9] - Net profit for Q3 2024 was $223.3 million, a 29.6% increase from Q2 2024's $172.3 million and a 42.8% increase from Q3 2023's $156.4 million[9] - The company reported a net income attributable to shareholders of $148.8 million in Q3 2024, down 9.6% from Q2 2024[9] - Operating profit for Q3 2024 was $169,887, compared to $87,140 in Q2 2024, indicating a significant improvement in operational efficiency[22] - The company reported a profit of $223,270 thousand for the quarter, up from $172,262 thousand in the previous quarter, indicating a growth of approximately 29.6%[25] Margins and Expenses - The gross margin for Q3 2024 improved to 20.5%, compared to 13.9% in Q2 2024 and 19.8% in Q3 2023[9] - Operating expenses in Q3 2024 were $274.3 million, an increase from $178.0 million in Q2 2024[10] - Research and development expenses were $179.39 million in Q3 2024, a slight decrease of 0.8% from $180.75 million in Q2 2024[15] - Depreciation and amortization expenses increased to $831,097 thousand from $797,166 thousand, reflecting a rise of about 4.3%[25] Capacity and Utilization - The company added 21,000 pieces of 12-inch monthly capacity in Q3 2024, enhancing product structure and increasing average selling prices[5] - Overall capacity utilization improved to 90.4% in Q3 2024[5] - The capacity utilization rate improved to 90.4% in Q3 2024, compared to 85.2% in Q2 2024 and 77.1% in Q3 2023[13] Cash Flow and Investments - The net cash generated from operating activities for the three months ended September 30, 2024, was $1,236,416 thousand, a significant increase from $19,275 thousand in the previous quarter[25] - The net cash used in investing activities was $1,345,115 thousand, a decrease from $1,637,666 thousand in the previous quarter, showing improved cash flow management[25] - The company incurred capital expenditures of $1,880,836 thousand for property, plant, and equipment, compared to $2,361,507 thousand in the previous quarter, indicating a reduction of approximately 20.3%[25] Balance Sheet and Equity - Total assets as of September 30, 2024, were $47,211,143, slightly down from $47,351,767 at the end of Q2 2024[24] - Total liabilities decreased to $15,785,132 in Q3 2024 from $16,382,094 in Q2 2024, indicating a reduction in financial obligations[24] - The company reported a net debt of $(2,237,335) in Q3 2024, improving from $(2,547,208) in Q2 2024, showcasing a stronger balance sheet[23] - The company’s equity increased to $31,426,011 in Q3 2024 from $30,969,673 in Q2 2024, reflecting growth in shareholder value[24] Regional Performance - Revenue from the China region increased to 86.4% in Q3 2024, up from 80.3% in Q2 2024 and 84.0% in Q3 2023[11] Inventory and Current Ratio - Inventory increased to $2,877.13 million in Q3 2024 from $2,740.17 million in Q2 2024[19] - The current ratio improved to 1.6 in Q3 2024, compared to 1.5 in Q2 2024[19] Other Income and Cash Management - Other income decreased by 26.9% to $72.99 million in Q3 2024 compared to $99.88 million in Q2 2024[17] - Cash and cash equivalents decreased to $3,651,385 in Q3 2024 from $3,694,277 in Q2 2024, reflecting a net decrease of $42,892[23] - The company reported a decrease in cash used for financing activities to $97,009 thousand from $46,379 thousand in the previous quarter[25]

Investment Rating - The report initiates coverage on SMIC with a **Buy** rating and sets a target price of **HKD 32.00**, implying a potential upside of **16.4%** from the current price of HKD 27.50 [2][4] Core Views - SMIC is positioned as a leader in the semiconductor foundry industry, playing a critical role in the localization of China's semiconductor supply chain [2] - The company's expansion plans are progressing steadily, with capital expenditures (CapEx) expected to stabilize after 2025, following a period of high investment in 2022-2024 [2][10] - Localization efforts and recovery in key industries such as smartphones and consumer electronics are expected to support SMIC's fundamentals [2][3] - The company's capacity utilization is projected to rebound from a low of 68.1% in 1Q23 to 84.7% in 2024, driven by demand from smartphones and consumer electronics [3][44] Financial Projections - Revenue is forecasted to grow from **USD 7.975 billion in 2024** to **USD 10.375 billion in 2026**, with a CAGR of 14% [6][9] - Gross margins are expected to recover from **16.8% in 2024** to **22.3% in 2026**, driven by reduced CapEx pressure and improved pricing [4][11] - Net profit is projected to increase from **USD 744 million in 2024** to **USD 1.342 billion in 2026**, with diluted EPS rising from **USD 0.09** to **USD 0.17** [6][20] Capacity Expansion - SMIC plans to add **34,000 wafers/month of 12-inch capacity** over the next 5-7 years, with **6,000 wafers/month** added in 2024 and **4,500 wafers/month** in both 2025 and 2026 [32][36] - Total 8-inch equivalent capacity is expected to reach **1.046 million wafers/month by 2025**, up from **806,000 wafers/month in 2023** [12][36] Capital Expenditure - CapEx peaked at **USD 7.47 billion in 2023** and is expected to decline to **USD 5.67 billion in 2025** and **USD 5.60 billion in 2026**, as the company transitions from heavy investment to stable capacity expansion [10][39] - The high CapEx in 2022-2024 was driven by the need to secure equipment ahead of potential geopolitical restrictions, with **70% of CapEx allocated to semiconductor equipment** [38][40] Localization and Demand Recovery - Localization of semiconductor manufacturing, particularly in smartphones and electric vehicles, is expected to drive long-term demand for SMIC's services [44][49] - Smartphone demand recovery, driven by inventory replenishment and policy support, is expected to boost SMIC's capacity utilization and pricing power [54][56] Valuation - The target price of **HKD 32.00** is based on a **1.5x 2025 P/B ratio**, reflecting SMIC's improving profitability and capacity utilization [4][23] - SMIC's valuation is supported by its strategic role in China's semiconductor localization and its potential to capture a larger share of the domestic market [24][25] Key Catalysts - Successful conversion of CapEx into effective capacity and steady progress in capacity expansion [25] - Further recovery in downstream demand, particularly in automotive, industrial, and communication sectors [25] - Policy support for semiconductor localization and potential advancements in advanced node technologies [25]

Financial Performance - Semiconductor Manufacturing International Corporation reported a revenue of $1.5 billion for the first half of 2024, representing a 10% increase compared to the same period in 2023[5]. - Revenue for the six months ended June 30, 2024, was $3,651,452 thousand, representing a 20.8% increase compared to $3,022,684 thousand for the same period in 2023[9]. - The company anticipates a revenue growth of 15% for the full year 2024, driven by increased demand in various sectors including automotive and consumer electronics[5]. - The company achieved revenue of $3,651.5 million, a year-on-year increase of 20.8%, with the foundry business revenue reaching $3,394.6 million, up 23.0% year-on-year[37]. - The number of wafers sold increased from 2,655 thousand to 3,907 thousand, contributing to the revenue growth[59]. - The company reported a total of $14.49 billion in financial liabilities as of June 30, 2024, compared to $13.88 billion at the end of 2023[180]. - The company reported a total equity of $30.97 billion as of June 30, 2024, an increase from $29.99 billion as of June 30, 2023[156]. - The company reported a profit of $25,651 thousand for the six months ended June 30, 2024, a decrease of 36% from $40,363 thousand in the same period of 2023[170]. Profitability Metrics - The company achieved a gross margin of 25% in the first half of 2024, up from 22% in the previous year, indicating improved operational efficiency[5]. - Net profit attributable to the company's owners for the same period was $236,361 thousand, a decrease of 62.7% from $633,864 thousand in the prior year[9]. - Gross profit decreased by 18.7% to $504.8 million, attributed to changes in product mix and increased depreciation[60]. - Operating profit fell by 45.1% to $89.5 million, influenced by the aforementioned revenue, cost, and gross profit changes[60]. - Basic earnings per share dropped to $0.03 from $0.08, a decline of 62.5%[10]. - Net profit for the period was $235.8 million, a decline of 67.8% compared to $731.3 million in the previous year[61]. Research and Development - Research and development expenses increased by 12% to $300 million in the first half of 2024, focusing on next-generation chip technologies[5]. - Research and development (R&D) expenses for the first half of 2024 amounted to $368.86 million, representing 10.1% of total revenue, a decrease of 1.3 percentage points from 11.4% in the same period of 2023[27]. - The company has 2,300 R&D personnel, accounting for 12.2% of the total workforce, with an average salary of $30,000 per R&D employee[29]. - The R&D team consists of experienced professionals, ensuring high-quality output and reliability in product development[31]. - The company is advancing several key projects, including a 28nm ultra-low leakage platform, which has released PDK V1.0 and is in the process of customer product introduction[27]. Market Position and Strategy - SMIC ranked fourth globally among pure wafer foundry companies based on 2023 sales figures, and it is the leading integrated circuit manufacturer in mainland China[23]. - The company plans to expand its production capacity by 20% in 2025 to meet the growing market demand for advanced semiconductor technologies[5]. - The company is exploring potential mergers and acquisitions to strengthen its market presence and technological capabilities[5]. - The company focuses on technology leadership, platform diversity, and performance differentiation to attract customers, while also emphasizing the development of new packaging technologies and design services[24]. - The company is actively enhancing its industry chain integration capabilities, aiming to provide comprehensive integrated circuit solutions[34]. Sustainability and Environmental Practices - SMIC is committed to enhancing its sustainability practices, with plans to reduce carbon emissions by 30% by 2030[5]. - The company invested $98 million in environmental protection during the reporting period[104]. - The company has constructed 22 sets of acidic gas treatment facilities, 6 sets of alkaline gas treatment facilities, 5 sets of organic gas treatment facilities, and 3 sets of arsenic-containing gas treatment facilities, along with 1 ammonia wastewater treatment system currently under construction[105]. - The company received the "Zero Waste Star" certificate from the Beijing Economic and Technological Development Zone in the first half of 2024, highlighting its commitment to environmental responsibility[107]. - All emission indicators of the company have met standards, with no administrative penalties received for environmental issues during the reporting period[107]. Risks and Challenges - The company faces risks related to technology upgrades and R&D investment, which are critical in the fast-evolving semiconductor industry[38]. - There is a significant risk of talent shortages in the semiconductor industry, which could impact the company's R&D progress and competitive edge[39]. - The company is exposed to risks from high customer concentration, which could affect operational stability and profitability if major clients face difficulties[42]. - Supply chain risks, including shortages and price fluctuations of critical materials and components, could adversely impact the company's production and operations[43]. - Geopolitical tensions and export control policies from countries like the U.S. could create supply chain uncertainties and operational challenges for the company[49]. Corporate Governance and Compliance - The company has maintained compliance with the corporate governance code and has a structured governance framework in place[82]. - The company will actively implement measures to mitigate the dilution of immediate returns for investors[117]. - The company guarantees that the content of the prospectus for the A-share issuance does not contain any false statements, misleading representations, or significant omissions, and will bear legal responsibility for the authenticity, accuracy, and completeness of the information[120]. - The company will accept supervision from regulatory bodies and the public regarding its commitments made during the A-share issuance[125]. - The company has confirmed that all public commitments made during the A-share issuance are binding and will be strictly adhered to[125].

Financial Performance - Semiconductor Manufacturing International Corporation (SMIC) reported its unaudited interim results for the six months ended June 30, 2024[1]. - Revenue for the six months ended June 30, 2024, was $3,651,452 thousand, representing a 20.8% increase compared to $3,022,684 thousand for the same period in 2023[10]. - Net profit attributable to shareholders for the same period was $236,361 thousand, a decrease of 62.7% from $633,864 thousand in the prior year[10]. - The gross profit margin decreased to 13.8% from 20.6%, a decline of 6.8 percentage points year-over-year[11]. - The net profit margin fell to 6.5% from 24.2%, a decrease of 17.7 percentage points compared to the previous year[11]. - Basic earnings per share decreased to $0.03 from $0.08, reflecting a decline of 62.5%[11]. - Cash flows from operating activities decreased to $489,297 thousand, a significant drop of 69.4% from $1,597,705 thousand in the same period last year[10]. - The company achieved revenue of $3,651.5 million in the reporting period, representing a year-on-year increase of 20.8%[38]. - The foundry business revenue was $3,394.6 million, reflecting a year-on-year growth of 23.0%[38]. - Net profit for the period was $235.8 million, a decline of 67.8% compared to $731.3 million in the previous year[62]. Research and Development - Research and development expenses accounted for 10.1% of revenue, down from 11.4% in the previous year, a reduction of 1.3 percentage points[11]. - R&D expenses totaled $368.86 million, accounting for 10.1% of revenue, a decrease of 1.3 percentage points compared to the previous year[28]. - The number of R&D personnel increased to 2,300, with an average salary of $30,000, up from $26,000 the previous year[30]. - The company has made progress in multiple R&D projects, including the 28nm ultra-low leakage platform, which has released PDK V1.0 and is in the process of customer product introduction[28]. - The R&D team consists of experienced professionals, enhancing the company's innovation capabilities and product performance[32]. - SMIC has developed various technology platforms for 8-inch and 12-inch wafer foundry services, providing a "one-stop" solution for customers[26]. - The company applied for 379 patents during the reporting period, with a total of 19,916 patents accumulated, including 11,865 invention patents[27]. Market and Industry Trends - In the first half of 2024, the global semiconductor industry showed signs of recovery, with a general upward trend in the industry chain being established[22]. - The semiconductor demand in the automotive sector is entering a cyclical adjustment phase, with inventory digestion gradually slowing down due to increasing competition in the electric vehicle market[22]. - The semiconductor industry remains characterized by high technical, talent, and capital intensity, with significant barriers to entry due to strict management and execution standards[23]. - Future trends indicate that wafer foundry companies will continue to expand capacity, develop new processes, and strengthen industry chain collaboration, leading to a more pronounced head effect in the industry[25]. - The semiconductor demand in various segments is showing differentiation, with leading industries rapidly growing while others face intense competition[22]. Operational Efficiency - The company has established a procurement management system to enhance production efficiency and cost control, maintaining long-term relationships with key suppliers while also integrating new suppliers[20]. - The company employs a multi-channel marketing strategy to expand its customer base, actively engaging in market research and direct communication with clients to tailor solutions[21]. - The company’s production model includes small-batch trial production, risk mass production, and bulk production stages, ensuring alignment with customer demand[20]. - The company is focused on enhancing its integrated circuit manufacturing capabilities and expanding its ecosystem services, including design services and IP support[18]. Financial Position and Risks - The company’s total interest-bearing debt amounted to $10,433.3 million, with cash and cash equivalents at $3,694.3 million[64][65]. - The company faces risks related to technology upgrades and R&D investment, which are critical in the capital-intensive semiconductor industry[39][42]. - There is a significant risk of talent shortages in the semiconductor industry, which could impact R&D progress[40]. - The company is exposed to supply chain risks due to reliance on a limited number of suppliers for critical materials and components[44]. - The company may experience performance volatility due to macroeconomic fluctuations and changes in customer demand[45]. - The company faces asset impairment risks due to potential significant declines in asset market values, which could adversely affect profits[46]. - Geopolitical tensions and export control policies from the US could create supply chain uncertainties and restrict access to essential production materials, adversely affecting operations[50]. Environmental Responsibility - The company invested $98 million in environmental protection during the reporting period[105]. - The company has constructed 22 sets of acidic gas treatment facilities, 6 sets of alkaline gas treatment facilities, 5 sets of organic gas treatment facilities, and 3 sets of arsenic-containing gas treatment facilities, along with 1 ammonia wastewater treatment system currently under construction[106]. - The company achieved compliance in all major pollutant emissions, with maximum wastewater discharge concentrations such as COD at 248.4 mg/L against a standard of 500 mg/L in Shanghai[106]. - The company has implemented carbon reduction measures, resulting in a reduction of 17,589 tons of CO2 equivalent through various projects, including the replacement of high GWP refrigerants with low GWP alternatives[109]. - The company received the "Waste-Free Star" certificate from the Beijing Economic and Technological Development Zone in the first half of 2024, highlighting its commitment to environmental responsibility[108]. Corporate Governance and Compliance - The company has maintained compliance with the corporate governance code and has a structured governance framework in place, including various specialized committees[83]. - The company will strictly follow the legal procedures for related party transactions and ensure fairness in pricing to protect shareholder interests[112]. - The company guarantees that the A-share issuance does not involve any fraudulent activities[116]. - The company commits to strictly adhere to the profit distribution policy as per the regulations set by the China Securities Regulatory Commission after the A-share issuance[120]. - The company will ensure that related party transactions are conducted based on fairness and transparency principles[113]. Shareholder Information - The number of registered shareholders as of the reporting period end is 246,030, with 234,147 holding A-shares and 11,883 holding Hong Kong shares[137]. - Major shareholders include China Information Technology Group Corporation, holding 1,189,323,450 shares, which is 14.95% of the total issued shares[139]. - The company has issued a total of 5,982,597,856 shares in Hong Kong, accounting for approximately 75.2% of the total share capital, and 1,973,609,172 shares on the Shanghai Stock Exchange, accounting for about 24.8%[141]. - The top ten shareholders collectively hold 4,236,160,019 shares, representing 53.24% of the total shares, with a notable increase of 9,222,461 shares during the reporting period[142].

Investment Rating - The report assigns a "Buy" rating to the company with a target price of HKD 21.00, indicating a potential upside of 23.55% from the current stock price of HKD 17.00 [1][3]. Core Insights - The company reported Q2 2024 revenue of USD 1.90 billion, a year-on-year increase of 21.8% and a quarter-on-quarter increase of 8.6%, slightly above market expectations [1]. - The guidance for Q3 2024 indicates a revenue increase of 13%-15% to USD 2.15-2.19 billion, surpassing the consensus estimate of USD 1.87 billion, with a gross margin expected between 18%-20% [1]. - The demand for consumer electronics is recovering, contributing to a 35.6% revenue increase, particularly in gaming, toys, and smart furniture [1]. Summary by Sections Financial Performance - Q2 2024 operating profit was USD 90 million, a 9.2% increase year-on-year, while net profit decreased by 59.1% to USD 160 million, resulting in a net profit margin of 8.7% [1]. - The average monthly capacity for 8-inch wafers is projected to reach 850,000 pieces in 2024, with a capital expenditure guidance of USD 7.5 billion for the year [1][4]. Market Outlook - The semiconductor cycle is expected to recover, driven by a gradual increase in capacity utilization rates and a rebound in consumer electronics demand [1]. - The company anticipates a revenue CAGR of 27% and a net profit CAGR of 14.1% over the next three years [1]. Valuation Metrics - The report estimates a price-to-book (PB) ratio of 1.0 for valuation purposes, supporting the target price of HKD 21.00 [1][3]. - The company holds a 5.5% market share in the global wafer foundry industry, which is expected to increase to 8.0% by year-end [1].