SMIC（0981.HK）Robust 3Q24 guidance signals faster industry turnaround

Investment Rating - The report rates SMIC as a BUY with a target price of HK$23.00, up from a prior target price of HK$22.00, based on a price-to-book (P/B) ratio of 1.1x [2][6][10]. Core Insights - SMIC's 2Q24 revenue and gross profit margin (GPM) exceeded guidance, driven by strong demand from smartphone and consumer electronics, with a revenue increase of 22% year-over-year and 9% quarter-over-quarter to US$1.9 billion [6][12]. - The company anticipates a robust 3Q24, projecting revenue growth of 13-15% quarter-over-quarter and an improved GPM of 18-20% [6][13]. - The recovery is attributed to restocking demand, easing price competition, and improvements in average selling price (ASP) and yield, particularly in advanced nodes, which are expected to continue into 2025 [6][10]. Financial Forecasts - Revenue projections for the years ending December are as follows: - 2024E: US$7.975 billion - 2025E: US$9.662 billion - 2026E: US$10.991 billion [8][18]. - Core EPS estimates have been revised significantly, with increases of 106% for 2024E, 40% for 2025E, and 35% for 2026E [10][16]. Key Financial Metrics - 2Q24 financial highlights include: - Revenue: US$1.901 billion - GPM: 13.9% - Net income: US$165 million, reflecting a 129% increase quarter-over-quarter [12][19]. - The company’s monthly capacity for 8" equivalent wafers increased to 837k in 2Q24, with a utilization rate of 85.2% [12][17]. Management Outlook - Management expects 2024 revenue growth to align with or exceed industry averages, with a significant increase in 12" capacity planned for the second half of 2024 [14][10]. - The anticipated end of restocking demand in 4Q24 is noted, as channel inventory reaches desired levels, but long-term demand from domestic customers is expected to support ASP increases [14][10].