CICC: Raises target price of SMIC to HKD 35, company guidance points to stable Q4 business

Jinshi data news on November 11th, CICC published a report indicating that the increase in depreciation and amortization of new capacity of SMIC International (00981.HK) will continue to impact the gross margin, even though the increase in demand and improvement of product mix can alleviate the impact. The bank extended its valuation basis to 2025, and the target price-to-book ratio for its H shares was revised from 1.1 times to 1.7 times, with the target price of H shares raised from 23 Hong Kong dollars to 35 Hong Kong dollars, maintaining an “outperform” rating. The report stated that SMIC’s quarterly revenue increased by 14% to 2.17 billion US dollars, in line with market expectations and the company’s guidance of 13% to 15% rise; gross margin was 20.5%, higher than the upper limit of the guidance of 18% to 20%; net profit fell by 10% to 149 million US dollars, below market expectations. Wafer shipments increased by 0.5% quarter-on-quarter, while the average selling price of wafers increased by 15.5% quarter-on-quarter, and the composite average selling price increased by 13.6% quarter-on-quarter. The company expects fourth-quarter revenue to remain flat to rise by 2% quarter-on-quarter, beating market expectations of a 2% quarter-on-quarter decline; gross margin is expected to be between 18% to 20%, with the market expectation at 19%. The bank believes that the guidance points to stable business in the fourth quarter, with factors including: the rise in average selling price due to favorable product mix changes, partially offset by the decline in shipments and capacity utilization caused by seasonal consumer electronics products; and the rise in the proportion of high-priced 12-inch wafer shipments, boosting total capacity with the new factory.