Investment Rating - The industry investment rating is "Overweight" (maintained) [1] Core Insights - The strong demand for AI is expected to drive price increases for TSMC's advanced process technology from 2026 to 2029, indicating a trend of continuous supply shortages globally [3][4] - Domestic demand for advanced logic chips is anticipated to rise rapidly, with significant growth in both demand and supply expected during the 14th Five-Year Plan period [5] - Recent capital market activities by SMIC and Hua Hong Semiconductor suggest improvements in profitability and advancements in advanced logic processes [6] Summary by Sections Industry Trends - TSMC's N2 node is set to begin mass production in Q4 2025, with initial monthly capacity of approximately 35,000 wafers, expected to increase to 140,000 wafers by the end of 2026, surpassing previous market estimates [4] - The demand for advanced processes remains tight despite the early ramp-up of U.S. wafer fabs and the unexpected capacity of 2nm technology [4] Demand and Supply Dynamics - The import scale of core semiconductor equipment in Shanghai reached approximately 55.8 billion yuan from January to November 2025, a 41% increase compared to 2024, indicating a favorable expansion pace [5] - The trend of "China for China" in advanced process foundries is expected to gain momentum as domestic technology matures [5] Capital Market Activities - SMIC's acquisition of the remaining 49% stake in SMIC North is expected to enhance profit margins, with a projected 19% increase in net profit for the first eight months of 2025 [6] - Hua Hong's acquisition of Hua Li Micro is anticipated to improve revenue by 30% and net profit by 269% for the same period [6] Investment Recommendations - The semiconductor equipment and foundry sectors are expected to benefit from the growth in advanced process demand, with recommended stocks including SMIC, Hua Hong Semiconductor, and others [7]

Core Viewpoint - SMIC (00981) has seen a stock price increase of over 3%, currently trading at HKD 52.75 with a transaction volume of HKD 3.331 billion. The company is set to hold a board meeting on August 7 to approve the release of its unaudited performance announcement for the three months ending June 30, 2025. The company anticipates a decline in revenue for Q2 this year, marking the first quarter-over-quarter decrease in two years, with a projected decline of 4% to 6%. Additionally, the gross margin guidance for Q2 2025 is set between 18% and 20% [1]. Group 1 - SMIC's stock price increased by 3.43% to HKD 52.75, with a trading volume of HKD 3.331 billion [1]. - The company will hold a board meeting on August 7 to approve the unaudited performance announcement for the three months ending June 30, 2025 [1]. - SMIC expects a revenue decline in Q2, projecting a quarter-over-quarter decrease of 4% to 6%, which would be the first decline in two years [1]. Group 2 - The gross margin guidance for Q2 2025 is set between 18% and 20% [1]. - According to a recent report by Shenwan Hongyuan, SMIC is a core beneficiary of high-end substitution, given its leading position in advanced process foundry in mainland China [1]. - The report assigns a target price of HKD 63.3 per share for SMIC, based on a 3x PB valuation for 2025, initiating coverage with a "buy" rating [1].