2025-10-09 02:00Summary of Conference Call Notes Industry Overview - The conference call focuses on the semiconductor industry in China, particularly the growth driven by artificial intelligence (AI) technologies, benefiting companies like SMIC and Hua Hong [1][2]. Key Points and Arguments AI Ecosystem Development - Continuous development of China's domestic AI ecosystem is expected to create long-term business opportunities for SMIC and Hua Hong in the semiconductor sector [1]. - DeepSeek's release of the V3.2-Exp model has improved training and inferencing efficiency, reducing API costs by over 50% [1]. - Domestic chip suppliers, including Cambricon, Huawei, and Hygon, have adapted to the new DeepSeek model, enhancing collaboration between chip suppliers and model builders [2]. Financial Projections and Price Targets - SMIC's target price (TP) has been raised to HK$117.0 (Rmb211.0), while Hua Hong's TP is also set at HK$117.0, with both companies rated as "Buy" [1]. - Hua Hong's earnings estimates for 2028-29 have been revised upwards by 0.8% and 1.8% respectively, reflecting a more positive outlook for revenues and gross margins [8]. - SMIC's earnings estimates for 2028-29 have been increased by 0.3% and 0.5% due to higher expected demand for AI devices [24]. Capacity Expansion and Technology Migration - Both SMIC and Hua Hong are committed to expanding their capacities, with SMIC focusing on 7nm and 14nm technologies, while Hua Hong plans to migrate to 28nm in their next fabrication facility [7]. - Continuous investment in capacity expansion is expected to meet the growing demand driven by AI technologies [7]. Earnings Revisions - Hua Hong's revenue projections for 2028 and 2029 have been increased by 0.1% and 0.3% respectively, driven by higher demand for 28nm technologies [8]. - SMIC's revenue estimates for 2028 and 2029 have been adjusted to reflect higher demand for 14nm technologies [24]. Risks and Challenges - Key risks include weaker-than-expected end-market demand, slower ramp-up of 12" fabs, and uncertainties surrounding US-China trade relations [22]. Valuation Methodology - The valuation for Hua Hong is based on a discounted P/E method, with a target P/E of 68.8x for 2028E, reflecting a positive outlook driven by sustainable growth [21]. - SMIC's valuation is similarly based on a discounted P/E method, with a target P/E of 62.9x for 2028E, indicating a re-rating of China semiconductor companies [26]. Additional Important Information - The release of more efficient AI models is expected to lower application barriers and promote wider adoption of AI technologies [1]. - The collaboration between local chip suppliers and AI model developers is anticipated to accelerate the development loop, optimizing chip capabilities for AI training [2]. - The financial outlook for both companies remains strong, supported by the increasing demand for AI-related semiconductors [1][2].