SMIC(00981) 交银国际证券·2024-11-06 02:01Investment 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]