Caixin Securities Co., Ltd. He Chen, Yuan Xin recently conducted research on SMIC and released a research report "long-term capital expenditure layout, expected demand is weak recovery", this report on SMIC to give an overweight rating, the current share price of 53.7 yuan.

SMIC (688981)

Investment Points:

Event: On November 10, 2023, SMIC released its third quarterly report. The company achieved revenue of 33.1 billion yuan in the first three quarters, a decrease of 12.4 percent year-on-year; net profit attributable to the parent company was 3.7 billion yuan, a decrease of 60.9 percent year-on-year. In the third quarter, the company achieved revenue of 11.8 billion yuan, a year-on-year decrease of 10.6 percent and a month-on-month increase of 6.1 percent; net profit attributable to the parent company was 0.68 billion yuan, a year-on-year decrease of 78.4 percent and a month-on-month decrease of 51.8 percent.

capacity expansion, wafer shipments increased 9.5 month on month: the company's 23Q capacity increased to 795000 wafers (about 8-inch wafers, the same below) in March, up 12.6 year on year and 5.4.% month on month. affected by the increase in capacity, Q3 capacity utilization rate decreased 1.2 percentage points to 77.1. Q3 wafer sales reached 1.53 million pieces, down 14.5 percent year-on-year and up 9.5 percent month-on-month. The growth was mainly due to image sensing (CIS)/image signal processing (ISP), radio frequency circuit (RF) and special storage requirements of domestic terminals, up 24%, 28% and 27% month-on-month respectively. Based on IFRS, the company expects sales revenue to increase by 1%-3% month-on-month in the fourth quarter, and gross margin is expected to be between 16%-18% (23Q3 is 19.8).

the company expects a weak recovery in demand and a limited rebound in the mobile phone market in 2024: the company believes that this round of small business is driven by mobile phones, mainly because a number of products have been released in the third quarter, which has stimulated the demand for replacement of many specific groups of people. Based on the company's current orders in hand and the flow cycle, 24 years of mobile phone market wafer shipments are basically flat year-on-year, or slightly up 1%-2%, the overall market shows a weak recovery, the domestic market inventory balance state.

the number of incoming equipment exceeds expectations, and the annual capital expenditure is expected to increase by about 18%: the company allows equipment suppliers to deliver ahead of schedule, and the delivery cycle of the global equipment supply chain has improved, resulting in a significant increase in the number of equipment in the factory before the end of the year compared with the original forecast. the annual capital expenditure is expected to increase to about us $7.5 billion, up about 18%. The company's capital expenditure in the first three quarters totaled about $5.1 billion, up 18% year-on-year, and is expected to be about $2.4 billion in the fourth quarter.

Investment advice: We expect the company's 2023-2025 revenue to be 430, 478 and 61.4 billion RMB, respectively, and net profit attributable to the parent company to be 46, 62 and 8 billion RMB, corresponding to PE of 93, 59 and 48 times. Considering that the company as the domestic wafer foundry leader, leading manufacturing process, the company continues to expand capacity, and capacity utilization in the industry is in a relatively stable state, the future performance is expected to continue to grow, maintain the company's "overweight" rating.

Risk Warning: Demand recovery is less than expected, competition in mature processes intensifies, and the international environment deteriorates

the securities star data center calculated according to the research report data released in the past three years that the research team of Hu jiongyi of CICC has conducted in-depth research on the stock. the average forecast accuracy in the past three years is as high as 83.95. its forecast attributable net profit in 2023 is profit 6.086 billion, and the forecast PE converted according to the current price is 70.11.

The latest profit forecast is as follows:

The stock has been rated by 14 agencies in the last 90 days, with 12 buy ratings and 2 overweight ratings; the average institutional target price in the past 90 days is 62.39.

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