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Semiconductor Manufacturing International Corp 00981

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SMIC Q2 Performance Trailblazes Estimates; Little Change to Long-Term Thesis, Raise FVE to HKD 19.20

Phelix Lee Equity Analyst

Analyst Note

| Phelix Lee |

We adjust our fair value estimate on Semiconductor Manufacturing International, or SMIC, to HKD 19.20 per H-share, equating to 1.2 times 2021 price/book to account for higher 2021 and 2022 gross margin forecasts, driven by higher average selling price and lower depreciation expense assumptions. Still, we are concerned about potential oversupply in 2023, and thus left our 2024 and 2025 forecasts largely unchanged. SMIC still looks overvalued as the market assumes no further restriction from the U.S. and underestimates depreciation headwinds once new capacity starts production. On top of new industry capacity and Korea’s initiative that we outlined in our last note, new expansion plans by Intel and Globalfoundries, or GF, add to our worries of excess plants in the long term. While Intel and GF’s plans may do little harm to TSMC, SMIC and UMC are the first to feel the impact with most of their revenues centering around the 14nm to 55nm process nodes. In the near term, China’s clampdown on automotive chip hoarding may subdue price adjustments.

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Company Profile

Business Description

Founded in 2000, Semiconductor Manufacturing International Corp. is the largest Chinese foundry and the fifth-largest globally, after TSMC, Samsung Electronics, GlobalFoundries and UMC. The company’s headquarters and foundry is in Shanghai; with additional foundries in Beijing, Tianjin, and Shenzhen; offices in the United States, Europe, Japan, Taiwan and Hong Kong. Its products are used in artificial intelligence, or AI, data centers, automotive, consumer electronics, memory, and "Internet of Things" products. SMIC employs over 17,000 people.

18 Zhangjiang Road, Pudong New Area
Shanghai, 201203, China, People's Republic of
T +86 2138610000
Sector Technology
Industry Semiconductors
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 17,354

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