SMIC (0981.HK)_ Improving product mix to support Rev_ GM in 4Q24; capacity expansion continues

Summary of SMIC (0981.HK) Earnings Call Company Overview - Company: Semiconductor Manufacturing International Corporation (SMIC) - Ticker: 0981.HK - Industry: Semiconductor Foundry Key Points from the Earnings Call Financial Performance - 3Q24 Results: - Revenue increased by 14% QoQ to US $2.171 billion** - Gross margin improved to **20.5%**, up **6.5 percentage points QoQ** [10][12] - **4Q24 Guidance**: - Expected revenue growth of **0% to 2% QoQ** - Gross margin projected to remain stable between **18% and 20%** [10][13] Capacity Expansion - **2024 Capacity Additions**: - Management maintains guidance for **60,000 12-inch wafers per month (wpm)** capacity additions, leading to a total capacity of **900,000 wpm** by year-end [10][15] - **Future Capex**: - Capex for 2025 is expected to grow by **8% YoY**, reaching **US$ 8.5 billion [10][15] Market Demand and Trends - 2025 Demand Outlook: - Anticipated growth in wafer demand driven by recovery in major end markets, particularly consumer electronics [12][37] - AI trends are expected to boost demand for semiconductors, especially in power management ICs and low-power computing chips [12][37] - End Market Performance: - Consumer electronics, which account for over 50% of SMIC's revenue, are expected to grow steadily [37] - Industrial and automotive segments are recovering slowly, with expectations of improvement from 2H25 [12][37] Strategic Focus - Product Mix Improvement: - Increased focus on high-end power semiconductors, particularly for automotive applications [13][12] - Technology Platform Development: - Plans to shift some expansion efforts from logic products to power semiconductors to build a comprehensive technology platform [13][12] Earnings Revisions - 2024 Earnings Revision: - Earnings revised down by 18% due to lower-than-expected results in 3Q24 and higher operational expenses anticipated in 4Q24 [15][10] - Long-term Earnings Outlook: - Slight upward revisions for 2025-2029 earnings by 3% to 1% due to better demand outlook and recovery in gross margins [15][10] Valuation and Price Target - Target Price: - 12-month target price raised by 14% to HK$29.2 based on a 31x 2025E P/E [15][39] - Valuation Methodology: - Target price reflects long-term EPS growth compared to global peers [15][39] Risks - Key Risks: - Demand fluctuations in smartphones and consumer electronics - Potential delays in end-market diversification - Supply chain restrictions due to geopolitical factors [40][39] Conclusion - Investment Rating: - SMIC is rated as Neutral due to a balanced outlook of long-term growth potential against near-term market challenges [37][39]