SMIC(SH:688981)2024-11-11 02:44Investment Rating - The report maintains a "Buy" rating for the company, SMIC (中芯国际), and raises the target price for its Hong Kong shares to HKD 32.6, indicating a potential upside of 15%. The target price for its A-shares is raised to RMB 117.0, also reflecting a potential upside of 15% [6][7]. Core Insights - SMIC is positioned in an upward trend within the semiconductor sector, with third-quarter revenue reaching a record high of USD 2.17 billion, representing a year-on-year growth of 34% and a quarter-on-quarter increase of 14%. The gross margin significantly exceeded market expectations, reaching 20.5% in Q3, with expectations for stability in Q4 [6][7][13]. - The company is expected to benefit from the localization of semiconductor demand in China and indirectly from the growth in the semiconductor industry driven by AI applications. As production capacity is released, the company's fundamentals are anticipated to grow steadily [6][7]. Financial Summary - Revenue Forecast: The company’s revenue is projected to decline from USD 7.27 billion in 2022 to USD 6.32 billion in 2023, followed by a recovery to USD 8.02 billion in 2024, USD 9.72 billion in 2025, and USD 10.41 billion in 2026, with respective year-on-year growth rates of 34%, (13%), 27%, 21%, and 7% [5][11]. - Gross Margin: The gross margin is expected to decrease from 38.0% in 2022 to 19.3% in 2023, before recovering to 17.1% in 2024, 20.2% in 2025, and 28.0% in 2026 [5][11]. - Net Profit: Net profit is forecasted to drop from USD 1.82 billion in 2022 to USD 903 million in 2023, then rebound to USD 583 million in 2024, USD 923 million in 2025, and USD 1.81 billion in 2026, with growth rates of 7%, (50%), (35%), 58%, and 96% respectively [5][11]. - EBITDA Valuation: The report assigns an EV/EBITDA multiple of 12.8x for SMIC, indicating potential for upward valuation compared to historical averages [7][16]. Performance Metrics - Q3 2024 Performance: In Q3 2024, SMIC reported revenue of USD 2.17 billion, a 34% increase year-on-year, with a gross profit of USD 444 million, reflecting a 38% increase from the previous year. The net profit for the quarter was USD 149 million, up 58% year-on-year [13][14]. - Q4 2024 Guidance: The company expects Q4 revenue to grow by 1% quarter-on-quarter and 31% year-on-year, with a gross margin guidance of 19%, slightly above market expectations [7][14]. Market Valuation - The current market valuation for SMIC shows an EV/EBITDA of 14.7x, with a price-to-book ratio of 1.1x for Hong Kong shares and 4.2x for A-shares, suggesting room for valuation improvement compared to historical averages [7][16].