Summary of SMIC (0981.HK) Conference Call Company Overview - **Company**: SMIC (Semiconductor Manufacturing International Corporation) - **Ticker**: 0981.HK - **Industry**: Semiconductor Foundry Key Points Financial Performance - **3Q25 Results**: SMIC's 3Q25 results exceeded estimates and Bloomberg consensus, indicating strong operational performance [1][2] - **4Q25 Revenue Guidance**: Management expects a revenue increase of 0% to 2% QoQ for 4Q25, aligning with company guidance [1][2] - **Gross Margin Guidance**: Gross margin for 4Q25 is projected to be between 18% and 20%, consistent with the previous quarter but slightly below prior expectations [1] Growth Drivers - **Domestic Client Shipments**: Increased shipments to domestic clients are expected due to industry reshuffling opportunities [1][2] - **Capacity Expansion**: SMIC's capacity increased by 31.5k wpm in 3Q25, with similar growth anticipated in 4Q25. Full-year capex guidance remains flat or slightly increased YoY [3] - **Product Mix**: There is a growing contribution from 12-inch and higher value products, which is expected to drive revenue growth in the long term [1] Market Dynamics - **Demand Trends**: Management noted gradual growth in non-AI areas, particularly in consumer electronics, driven by market share gains among Chinese IC design clients and strong domestic consumption [2] - **MCU Market Potential**: There is an anticipated upside in the MCU market in China, where local IC designers are expected to play a larger role [2] - **Smartphone Market Uncertainty**: Some smartphone-related customers are becoming conservative due to memory shortages, which may impact shipments [2] Earnings Revisions - **Earnings Estimates**: Revisions for 2025-2029E earnings were made, with slight increases in operating profit margins (OPM) due to improved expense control [4][8] - **Net Income Growth**: The growth of net income attributed to non-controlling shareholders is outpacing that of net income to the parent company, indicating a shift in profit distribution [8] Valuation and Price Target - **Target Price**: The 12-month target price for SMIC's H-share is raised to HK$134.0, reflecting a P/E of 71.6x for 2028E earnings [10][26] - **A-share Target Price**: The target price for the A-share is set at Rmb241.6, based on a 196% premium over the H-share [11][26] Risks - **Demand Risks**: Potential weaker-than-expected demand in smartphones and consumer electronics could impact revenue [27] - **Capacity Expansion Risks**: Slower-than-expected product diversification and capacity expansions may hinder growth [27] - **Supply Chain Risks**: Access to certain equipment and materials may be restricted due to the company's status on the US BIS Entity List [28] Investment Thesis - **Long-term Growth**: SMIC is positioned to benefit from increasing local demand for semiconductors and a gradual recovery in margins, making it an attractive investment opportunity [29] Conclusion - **Recommendation**: Maintain a Buy rating on SMIC, with a positive outlook on its growth trajectory driven by domestic demand and capacity expansion initiatives [1][29]