2025-05-14 03:09Investment Rating - The report maintains an "Underweight" (UW) rating for SMIC with a price target of HK$32.00 for December 2025, reflecting concerns over weak revenue guidance and gross margin pressures [1][11][35]. Core Insights - SMIC's 1Q25 revenues were below expectations, with a 5% shortfall compared to guidance, attributed to yield challenges and a decline in average selling prices (ASP) [7][11]. - The company experienced a 15% quarter-over-quarter growth in shipments, particularly in 12" wafers, driven by customer demand pull-ins and restocking in the automotive sector [1][7]. - The 2Q25 guidance indicates a revenue decline of 4-6% quarter-over-quarter, with management expressing caution regarding demand visibility beyond 3Q [1][11]. - Adjustments to revenue growth estimates for 2025 have been made, reducing the forecast from 16% to 10-11% due to a weaker outlook for the second half of the year [1][11]. Summary by Sections Financial Performance - 1Q25 revenue was reported at US$2,247.2 million, with gross margins at 22.5%, exceeding consensus estimates by 170-190 basis points [16][11]. - The adjusted net income for 2025 is revised down to US$705 million from US$788 million, while the revenue estimate is adjusted to US$8,877 million from US$9,284 million [2][24]. Quarterly Forecasts - For 2025, the quarterly forecasts show a decline in revenues for 2Q25 to between US$2,112 million and US$2,157 million, down 4-6% quarter-over-quarter [17][22]. - The gross margin for 2Q25 is expected to be between 18-20%, indicating continued pressure on profitability [17][22]. Valuation Metrics - The price target of HK$32 is based on a price-to-book ratio of approximately 1.5x, reflecting concerns over revenue and gross margin trajectories [11][36]. - The report anticipates that gross margins will remain in the range of 20-22% with return on equity (ROE) staying below 5% in the coming years [1][11].