Summary of Conference Call on China Semiconductors Industry Overview - The focus is on the **semiconductor industry in China**, particularly the developments surrounding **SMIC (Semiconductor Manufacturing International Corp)** and **Hua Hong Semiconductor Ltd** [1][3]. Key Points and Arguments 1. **Positive Catalysts Ahead of National Day**: Anticipation of further positive developments in semiconductor localization in China before the National Day on October 1st, including testing of EUV tools by Sicarrier and DUV machines by SMIC [1]. 2. **AI Chip Self-Sufficiency Goal**: China aims for **70% self-sufficiency in AI chips by 2027**, which is expected to positively impact local foundries, especially SMIC [1]. 3. **Technological Advancements**: Continuous positive news regarding local equipment and semiconductor supply suggests that SMIC may produce chips at **7nm/5nm** using multi-patterning techniques [1]. 4. **EUV Machine Development**: There are reports of progress in self-supply of EUV machines, with trial production expected to start in the second half of 2025 [1]. 5. **Valuation of Hua Hong Semiconductor**: Target price set at **HK$45**, based on **1.6x 2026E BVPS**, reflecting an improving demand outlook and stable pricing [3]. 6. **Valuation of SMIC**: Target price set at **HK$53.0**, based on **2.4x 2026 P/B**, justified by sustainable momentum from US-China decoupling and gradual industry recovery [6]. 7. **Upside Risks for Hua Hong**: Potential for greater-than-expected demand in the semiconductor market and less capacity expansion by competitors [4]. 8. **Downside Risks for Hua Hong**: Risks include lower-than-expected demand and stronger capacity expansions by competitors [5]. 9. **Upside Risks for SMIC**: Better-than-expected margins from efficiency improvements and strong policy support could enhance profitability [7]. 10. **Downside Risks for SMIC**: Risks include heavy depreciation burdens affecting margins and weaker-than-expected demand impacting earnings [8]. Additional Important Information - The report emphasizes the importance of local developments in the semiconductor industry as a significant factor for investment decisions in SMIC and Hua Hong [1][3]. - The target prices for both companies reflect a bullish outlook based on anticipated market conditions and technological advancements [3][6]. - The report also highlights the potential conflicts of interest due to the firm's business relationships with the companies discussed [2].