SMIC(SH:688981)2024-10-07 16:08Financial Data and Key Metrics Changes - Hua Hong's 3Q24 revenues are expected to decline by 9% YoY, a significant improvement from the 20%+ YoY declines in 1Q and 2Q, attributed to demand recovery for mature node semiconductors after inventory correction [2][3] - SMIC's 3Q24 revenues are projected to grow by 34% YoY, driven by shipment recovery in smartphone and consumer-related applications [2][3] - Hua Hong's H shares trade at 24x 2025E P/E, while SMIC's H shares and A shares are traded at 28x and 70x 2025E P/E, respectively, indicating a relatively fair valuation for SMIC [2][3] Business Line Data and Key Metrics Changes - Hua Hong is operating at high utilization rates and is adding more capacities in the coming years, which is expected to support stronger revenue growth in 2025E [2][3] - SMIC's capital expenditure guidance for 2024 has increased to 60k wpm, indicating ongoing capacity expansions [2][3] Market Data and Key Metrics Changes - The demand for localized semiconductor production in China is increasing, which is expected to drive long-term revenue expansion for foundries [2][3] - The recent stock rally in China semiconductors has led to a valuation re-rating, supported by improving fundamentals [2][3] Company Strategy and Development Direction - The company is focusing on expanding localized capacity to capture a larger share of domestic demand, with SMIC constructing three 12" fabs as a long-term strategy [2][3] - Hua Hong is enhancing its product mix by moving towards higher-end power discretes and expanding its customer base in China [2][3] Management's Comments on Operating Environment and Future Outlook - Management remains positive on the long-term opportunities for China foundries due to increasing localized demand, although margins may face pressure from pricing and depreciation burdens [2][3] - The management acknowledges concerns regarding declines in utilization rates and pricing pressures following capacity expansions but believes that additional capacities can support future growth [2][3] Other Important Information - Earnings revisions for Hua Hong indicate a slight increase in gross margin expectations due to higher domestic demand for mature node semiconductors, while operational expenses are expected to rise [3][6] - SMIC's earnings revisions reflect a more positive outlook on revenues driven by increasing domestic demand, which could also benefit gross margins [6][8] Q&A Session Summary Question: What are the long-term growth prospects for the semiconductor industry in China? - The industry is expected to benefit from increasing demand for localized semiconductor production, particularly in sectors such as AI, electric vehicles, and robotics [3][12] Question: How are the companies managing capacity expansions? - Both Hua Hong and SMIC are actively expanding their capacities to meet growing domestic demand, with specific plans for new fabs and increased capital expenditures [2][3][6]