2025-11-16 15:36Summary of SMIC (0981.HK) Conference Call Company Overview - Company: SMIC (Semiconductor Manufacturing International Corporation) - Ticker: 0981.HK - Industry: Semiconductor Foundry Key Points Financial Performance - 3Q25 Results: SMIC's 3Q25 results exceeded estimates and Bloomberg consensus, indicating strong operational performance [1][2] - 4Q25 Revenue Guidance: Management expects a revenue increase of 0% to 2% QoQ for 4Q25, aligning with company guidance [1][2] - Gross Margin Guidance: Gross margin for 4Q25 is projected to be between 18% and 20%, consistent with the previous quarter but slightly below prior expectations [1] Growth Drivers - Domestic Client Shipments: Increased shipments to domestic clients are expected due to industry reshuffling opportunities [1][2] - Capacity Expansion: SMIC's capacity increased by 31.5k wpm in 3Q25, with similar growth anticipated in 4Q25. Full-year capex guidance remains flat or slightly increased YoY [3] - Product Mix: There is a growing contribution from 12-inch and higher value products, which is expected to drive revenue growth in the long term [1] Market Dynamics - Demand Trends: Management noted gradual growth in non-AI areas, particularly in consumer electronics, driven by market share gains among Chinese IC design clients and strong domestic consumption [2] - MCU Market Potential: There is an anticipated upside in the MCU market in China, where local IC designers are expected to play a larger role [2] - Smartphone Market Uncertainty: Some smartphone-related customers are becoming conservative due to memory shortages, which may impact shipments [2] Earnings Revisions - Earnings Estimates: Revisions for 2025-2029E earnings were made, with slight increases in operating profit margins (OPM) due to improved expense control [4][8] - Net Income Growth: The growth of net income attributed to non-controlling shareholders is outpacing that of net income to the parent company, indicating a shift in profit distribution [8] Valuation and Price Target - Target Price: The 12-month target price for SMIC's H-share is raised to HK$134.0, reflecting a P/E of 71.6x for 2028E earnings [10][26] - A-share Target Price: The target price for the A-share is set at Rmb241.6, based on a 196% premium over the H-share [11][26] Risks - Demand Risks: Potential weaker-than-expected demand in smartphones and consumer electronics could impact revenue [27] - Capacity Expansion Risks: Slower-than-expected product diversification and capacity expansions may hinder growth [27] - Supply Chain Risks: Access to certain equipment and materials may be restricted due to the company's status on the US BIS Entity List [28] Investment Thesis - Long-term Growth: SMIC is positioned to benefit from increasing local demand for semiconductors and a gradual recovery in margins, making it an attractive investment opportunity [29] Conclusion - Recommendation: Maintain a Buy rating on SMIC, with a positive outlook on its growth trajectory driven by domestic demand and capacity expansion initiatives [1][29]