Market Overview - The A-share market showed mixed performance on September 29, with the ChiNext Index rising over 1% and returning above 3200 points, while the Shanghai Composite Index fell by 0.26% and the Shenzhen Component Index increased by 0.67% [1] - The Hong Kong market saw the Hang Seng Technology Index rise by over 1%, with notable gains in companies like SenseTime, Kingdee International, and Hua Hong Semiconductor [1] Lithium Battery Sector - The lithium battery and related industry chain experienced significant strength, with stocks such as Yicheng New Energy and Wanrun New Energy hitting the daily limit of 20% increase. Other stocks like Tianji Co., Shida Shenghua, Xiangtan Electric, and Duofluoride also saw similar gains [3][4] - The overall market sentiment in the lithium battery sector is positive, driven by advancements in technology and increased demand [5] Semiconductor Sector - The semiconductor industry chain faced a short-term decline, with companies like Cambricon Technologies dropping over 5%, and others such as Haiguang Information and Fudan Microelectronics falling more than 4% [6][7] Stock Performance Highlights - Notable stock performances included: - SenseTime (2.700, +3.05%, market cap 104.8 billion) - Kingdee International (16.770, +2.95%, market cap 59.5 billion) - Hua Hong Semiconductor (70.200, +2.86%, market cap 134.6 billion) - Yicheng New Energy (5.88, +20.00%, market cap 11 billion) - Wanrun New Energy (65.64, +20.00%, market cap 8.3 billion) [3][4]

Core Viewpoint - SMIC's stock experienced a decline of 1.37% on September 26, with a trading volume of 12.182 billion yuan, indicating a potential shift in investor sentiment and market dynamics [1] Financing Summary - On September 26, SMIC had a financing buy-in amount of 2.474 billion yuan, while the financing repayment was 2.644 billion yuan, resulting in a net financing outflow of 171 million yuan [1] - As of September 26, the total financing and securities lending balance for SMIC was 15.48 billion yuan, with the financing balance of 15.437 billion yuan accounting for 5.84% of the circulating market value, indicating a high level compared to the past year [1] - The securities lending activity on the same day included a repayment of 72,700 shares and a sale of 38,400 shares, with the selling amount calculated at approximately 5.0781 million yuan [1] Company Overview - SMIC, established on April 3, 2000, and listed on July 16, 2020, is located in Shanghai and specializes in integrated circuit wafer foundry services across various technology nodes from 0.35 microns to 14 nanometers [1] - The company's main business revenue composition is 93.83% from integrated circuit wafer foundry and 6.17% from other services [1] Shareholder Information - As of June 30, 2025, SMIC had 252,300 shareholders, a decrease of 2.20% from the previous period, while the average circulating shares per person increased by 2.26% to 8,223 shares [2] - The top ten circulating shareholders included several ETFs, with notable increases in holdings, such as the Huaxia SSE Sci-Tech Innovation Board 50 ETF, which increased its holdings by 3.3552 million shares [2]

Group 1: China's Market Comeback - Global money managers are significantly returning to China's equity market, driven by a strong stock rally and advancements in high-tech industries, particularly AI and semiconductors [2][3] - Chinese hardware makers, such as Cambricon Technologies, SMIC, and Hygon Information Technology, are experiencing substantial gains in the A-share market due to soaring demand for AI-driven cloud computing [4] - Alibaba Group has seen its shares surge following plans to ramp up AI spending, with global AI investment expected to reach approximately $4 trillion over the next five years [4] Group 2: Asia's Equity Capital Markets - Asia's equity capital markets are thriving, with Hong Kong and India leading in deal activity, marking a standout year for ECM [5] - India is experiencing a rebound in investments, with senior dealmakers earning more than their counterparts in Singapore and Hong Kong, as global firms increase pay to attract talent [5] Group 3: UK Economic Outlook - The UK labor market is showing signs of cooling, with job postings falling by 1.3% year-on-year and 2.1% month-on-month, reflecting growing employer caution [6] - Despite higher vacancies than in January, businesses are concerned about potential tax rises and increased social security contributions, impacting hiring appetite [6] Group 4: Geopolitical Concerns - Ukrainian President Volodymyr Zelenskyy has warned of an impending AI arms race, emphasizing the need for global regulations on military AI and drone technology [7][8] - Zelenskyy highlighted the urgency of establishing rules for AI in weapons, comparing it to the necessity of preventing the spread of nuclear weapons [8]

Market Performance - The market saw an increase last week, with the China Securities Xinhua National Brand Index rising by 1.10% to 2019.88 points [1] - The Shanghai Composite Index rose by 0.21%, the Shenzhen Component Index by 1.06%, the ChiNext Index by 1.96%, and the CSI 300 Index by 1.07% [1] Strong Performing Stocks - Notable strong performers included Hu Silicon Industry, which increased by 19.75%, and Anji Technology, which rose by 19.05% [1] - Other significant gainers included Xinlitai (up 15.81%), Yangguang Power, and Zhongwei Company (both over 14%) [1] Year-to-Date Performance - Since the beginning of the second half of the year, Zhongji Xuchuang has surged by 183.63%, leading the gains [2] - Yangguang Power and Kewo Si have also shown substantial increases of 132.40% and 82.81%, respectively [2] Market Outlook - Starstone Investment suggests that the market's trading sentiment has declined due to risk aversion ahead of the long holiday, but this may indicate that funds are waiting for clearer policy and fundamental information [2] - The overall market remains strong, with no systemic risks identified, and various sectors are expected to present opportunities [2] Sector Rotation - Source Le Sheng Asset notes a clear rotation pattern this year, with sectors such as new consumption, innovative pharmaceuticals, technology, and high-dividend stocks experiencing alternating rises [3] - The investment strategy has been adjusted to reduce the proportion of technology stocks while increasing exposure to the manufacturing sector, focusing on technology, non-ferrous metals, manufacturing, and innovative pharmaceuticals [3]

26 September 2025 | 10:07PM HKT Equity Research SMIC (0981.HK): National subsidies continue in Oct; AI consumer electronics to support long-term growth; TP up to HK$95/Rmb208; Buy With another round of National subsidy funds being released in Oct (reference link), the demand of consumer electronics / smartphones in China in 2H25 has been on track and did not see significant downward correction. Despite a 66% revenues contributions from consumer electronics/ smartphones, we are positive on SMIC's order expan ...

Summary of Semiconductor Manufacturing and Equipment Industry Conference Call Industry Overview - The semiconductor manufacturing and equipment sector has shown remarkable performance in 2025, with the wafer foundry segment doubling in growth and the semiconductor equipment sector increasing by 57% since the beginning of the year [2][4] - The storage segment's expansion has significantly driven growth in the semiconductor equipment industry, with a 21% increase observed since September [1][2] Key Points and Arguments - **Storage Expansion Impact**: The expansion in the storage sector has led to increased confidence among manufacturers, with companies like Zhongwei and Huahai benefiting significantly, showing stock price increases of 30% and 50% respectively [1][3] - **Domestic Market Share Growth**: Domestic storage manufacturers have substantial room for market share growth, particularly in the NAND market, which is expected to rise from 10% to 30%, resulting in significant equipment spending increases [1][6] - **US Sanctions and Domestic Equipment Replacement**: US sanctions are accelerating the replacement of imported equipment with domestic alternatives, with potential increases in domestic equipment spending by 25 billion RMB if the domesticization rate rises from 30% to 80% [1][7] - **Advanced Logic Demand**: There is a strong demand for advanced logic, particularly for 7nm and below processes, with TSMC planning to add over 20 new wafer fabs to meet this demand [1][8] - **Supply and Demand Dynamics**: The domestic semiconductor market is experiencing high demand but tight supply, with projections indicating a rise in demand for 7nm wafers from 70,000-80,000 to over 100,000 in the next 3-5 years [9] Additional Important Insights - **Investment Value in Semiconductor Equipment**: The capital expenditure (Capex) for 7nm processes is approximately $2 billion per 10,000 wafers, with potential increases for more advanced processes, indicating substantial investment opportunities [10] - **Mature Logic Sector Development**: Companies like Huahong are expanding their production capacity, which is expected to drive continuous orders and growth in the equipment sector [11] - **Wafer Foundry Performance**: Notable stock performance in companies like SMIC and Huahong, with significant increases in both A-share and Hong Kong stock markets, reflecting strong industry sentiment and demand recovery [12][13] - **High Utilization Rates**: SMIC and Huahong reported high utilization rates of 92.3% and 108% respectively, indicating robust domestic demand and a recovery in wafer foundry services [14] - **AI and Advanced Process Influence**: AI and advanced processes are major growth drivers, with significant revenue potential from 7nm and 5nm processes, suggesting a strong market outlook for the semiconductor industry [15][16]

Core Insights - The report emphasizes that lithography machines are the largest segment in semiconductor equipment, with continuous growth opportunities driven by increasing semiconductor demand [4][10]. - The evolution of lithography technology focuses on enhancing resolution and reducing critical dimensions, guided by the Raleigh criterion [4][17]. - The global lithography machine market is projected to grow from approximately $258.4 billion in 2022 to $315 billion by 2024 [10][25]. Market Review - In the week of September 22-26, the overall A-share market rose by 0.25%, with semiconductor-related concepts performing strongly [4]. - The average daily trading volume for the A-share market reached 2.3092 trillion yuan, a decrease of 207.1 billion yuan from the previous week [4]. - The net inflow of funds into the semiconductor sector was significant, with major funds flowing into semiconductor and 5G application concepts [4][55]. Key Themes - Lithography Machines: SMIC has initiated domestic lithography machine validation, indicating potential breakthroughs in "bottleneck" technologies [5][25]. - AI and Robotics: The report highlights a surge in policy-driven demand for AI, marking a significant growth phase for the industry [5]. - Humanoid Robots: The introduction of new products signifies the arrival of the "humanoid robot era," accelerating the industrialization process [5]. Policy Dynamics - The report outlines several policies aimed at modernizing the industrial system and promoting technological innovation, emphasizing the importance of advanced manufacturing [6]. - The Ministry of Industry and Information Technology has committed to achieving new industrialization during the 14th Five-Year Plan period, focusing on high-quality development [6]. Industry Trends - AI and robotics are leading industrial transformation, with global cooperation and technological implementation accelerating [7]. - The report notes that the online sales of digital products, including smart wearables, computers, and mobile phones, have seen over 20% growth from January to August [7]. Lithography Machine Insights - The lithography process is critical in semiconductor manufacturing, accounting for about one-third of overall manufacturing costs and taking up 40%-50% of the time [10][15]. - The complexity of lithography machines is highlighted, with numerous subsystems integrated to achieve high precision [25]. - The domestic lithography machine market in China has surpassed 16.087 billion yuan in 2023, with a production of 124 units [25].

Investment Rating - Industry rating: Recommended [4] Core Insights - The report emphasizes the potential growth of the Beidou satellite navigation system and its applications in various sectors, including telecommunications, smart grid, and emergency response, indicating a multi-faceted development landscape [1][6] - The report highlights the increasing focus on domestic AI computing power, driven by significant growth in companies like Alibaba Cloud and Huawei, suggesting a robust acceleration in the scale and application of domestic AI computing [2][11] - The telecommunications operators are positioned to leverage their natural advantages in network operations and customer integration to promote satellite technology penetration, with a stable profit outlook supported by AI empowerment and cost reduction [8][9] Summary by Sections Beidou and Satellite Applications - The Beidou system is expected to upgrade significantly, with a projected annual growth rate of over 3% in applications, leading to an estimated 420 million new devices by 2028 [6] - The report notes that the telecommunications operators are crucial in expanding satellite applications, with traditional mobile business revenues under pressure but new opportunities arising from AI and satellite communications [7][8] AI Computing Power - The report recommends focusing on domestic AI computing power, with key beneficiaries including Cambrian, Moer Thread, and SMIC, as the industry anticipates accelerated growth in AI applications [2][11] - The demand for optical modules and components is expected to rise due to AI computing needs, with companies like LightSpeed Technology and Huagong Technology positioned to benefit [12][13] Telecommunications Sector - The report identifies telecommunications operators as key players in the AI and computing infrastructure space, with a focus on cloud and smart upgrades, benefiting from the "East Data West Computing" strategy [9][18] - The report suggests that the telecommunications sector is at a turning point, with traditional revenue streams under pressure but new growth areas emerging in satellite and IoT applications [8][18] Edge Computing and Security - The edge computing sector is anticipated to see renewed growth opportunities, with companies like Wangsu Technology and Yuke Technology highlighted as beneficiaries [20][21] - The report also emphasizes the importance of information security, recommending companies like Unisplendour and Qihoo 360 as key players in this space [21]

Investment Rating - Industry Rating: Recommended [3] Core Insights - The 2025 Yunqi Conference showcased advancements in AI technology, with Alibaba's flagship model Qwen3-Max entering the global top tier, achieving significant breakthroughs in multiple core metrics [10][16] - Alibaba is actively investing 380 billion in AI infrastructure, with plans for further investment, anticipating a tenfold increase in global data center energy consumption by 2032 to support the AI industry [21][25] - Domestic photolithography machines are making progress, with SMIC testing its first domestic DUV photolithography machine and other companies like Shanghai Microelectronics showcasing EUV projection exposure devices [11][35] Summary by Sections 1. Yunqi Conference and Domestic Computing Power - The conference emphasized the theme "Cloud Intelligence and Carbon-Silicon Symbiosis," highlighting the latest AI advancements [10] - Qwen3-Max achieved a 300% increase in parameter scale compared to its predecessor, with a coding capability pass rate of 89.7% in HumanEval tests [16] - The AI-native application architecture is emerging, indicating a shift from "cloud-native" to "AI-native" software definitions [13] 2. Breakthroughs in Domestic Photolithography Machines - SMIC is testing its first domestic DUV photolithography machine, which can potentially produce chips at 28nm and may advance to 7nm and 5nm [35] - The domestic photolithography industry is supported by national policies and increasing domestic demand, with significant investments in key technologies [30] 3. Investment Recommendations - Beneficiary stocks include Cambrian, ZTE, Haiguang Information, and Chipone [4][44] - The photolithography supply chain includes companies like Xuguang Electronics, Zhangjiang Hi-Tech, and Fuzhou Crystal Technology [4][44] 4. Market Overview - The computer industry ranked 9th this week, with a slight decline of 0.02%, while the CSI 300 index rose by 1.07% [45][49] - Year-to-date, the computer industry has increased by 24.95%, outperforming the CSI 300 by 9.32 percentage points [49]

Core Insights - The company achieved revenue of $2.2 billion in Q2 2025, a 2% decrease quarter-over-quarter, but better than guidance; gross margin was 20%, down 2 percentage points, slightly above guidance; net profit attributable to shareholders was $100 million [1] - For the first half of 2025, the company reported revenue of $4.5 billion, a 22% year-over-year increase, with a gross margin of 21%, up 8 percentage points year-over-year, and a net profit of $300 million, a 36% year-over-year increase [1] - The company is experiencing growth in both capacity and utilization rates, confirming the trend of domestic wafer production as more demand returns to local suppliers; wafer sales (equivalent to 8-inch) increased to 4.68 million pieces, a 20% year-over-year increase [1] - The company plans to purchase the remaining 49% stake in SMIC North, which will enhance shareholder returns; the acquisition will be funded through issuing shares to various investment entities [1][2] Financial Performance - The company expects Q3 revenue to increase by 5%-7% quarter-over-quarter, with gross margin maintained in the range of 18%-20% [1] - The projected net profits for 2025-2027 are $5 billion, $5.7 billion, and $6.3 billion respectively, with corresponding EPS of $0.62, $0.71, and $0.79; the latest closing price corresponds to PE ratios of 216x, 190x, and 170x, and PB ratios of 7x, 6.8x, and 6.5x [3] Strategic Developments - After the acquisition, SMIC North will become a wholly-owned subsidiary, enhancing the company's capabilities in 12-inch wafer foundry services across various technology platforms [2] - The collaboration with SMIC North is expected to create synergies in technology, customer networks, supply chains, core technologies, and capacity layout, thereby increasing business efficiency and shareholder returns [2]