Tianfeng Securities Co., Ltd. Pan Yin and Luo Yiyang recently conducted research on SMIC and released a research report "4Q24 Prospect: AI Demand and Order Transfer Effect are Expected to Bring Higher-than-Expected Business Performance", giving SMIC a buy rating and a target price of 133.59 yuan.

SMIC (688981).

Event: The company will release 4Q24 results after market hours on February 11, 2025, and hold a results meeting on the morning of February 12, after the company guided 4Q24 revenue from 0% to +2% in the 3Q24 financial report, and the gross profit margin is expected to be between 18% and 20%.

We expect strong AI demand to lead to better than market expectations, while offsetting some of the off-season effect in 1Q25.

Advanced processes are expected to continue to be in short supply: Global data center capital expenditure is expected to continue to increase significantly in 2025: 1) Google's 25-year capital expenditure is expected to be 75 billion US dollars (YoY+43%); 2) Amazon expects $100 billion (YoY+26%); 3) Meta expects $600-65 billion (YoY+53%~66%); 4) Microsoft expects to invest $80 billion in FY25; 5) The Stargate program plans to invest $500 billion over the next four years. We expect that the capital expenditure trend of mainland data centers is the same as that of the world, and the demand growth of domestic computing chips benefiting from the trend of domestic substitution is expected to be better than the global average.

Mature processes benefit from end-to-end AI: Since the release of the domestic large-scale model Deepseek-R1, the market feedback has been positive, and the characteristics of strong capabilities and low cost are expected to accelerate the popularization of domestic AI applications, and AI terminals are expected to be fully expanded, with SMIC's 3Q24 revenue accounting for 42.6% of consumer electronics and 8.2% of interconnection and wearables.

After the new US semiconductor policy on China, the transfer effect is expected to benefit the company, and it is expected that it will gradually be reflected in 2Q25.

On January 15, 2025, BIS in the United States issued the latest ban on semiconductors in China. The new ban has changed from restricting specific companies to restricting a certain range of processes and transistors (for example, semiconductor design companies that are not authorized by the U.S. government need to apply for a license to use processes below 16/14nm, unless they meet the exemption conditions), and publish a whitelist for IC design, packaging and testing. We believe that external geopolitics has brought great uncertainty to the semiconductor supply chain, and the use of local production is expected to reduce supply chain risks.

Investment Advice:

Based on three logics, we are optimistic about the company's development in the AI era: 1) AI drives the semiconductor cycle upward, and the company fully benefits; 2) Advanced process foundry demand benefits from the rapid growth of local AI demand; 3) Domestic production of mature processes benefits from the recovery of consumption, and domestic substitution is also expected to accelerate. It is estimated that the company's revenue in 24/25/26 will reach 567/657/73.5 billion yuan, and the net profit attributable to the parent company will reach 40.17/59.62/7.295 billion yuan, maintaining the target price of SMIC's A shares in 2025 at 133.59 yuan and maintaining a "buy" rating.

Risk Warning: The uncontrollable impact of U.S. restrictions on China's technology; overcapacity of mature processes; intensified competition in the market; Downstream demand is less than expected

According to the calculation of the research report data released in the past three years, the Yueyang research team of Huachuang Securities has studied the stock in depth, with an average forecast accuracy of 79.71% in the past three years, and its forecast attributable net profit in 2024 is 3.826 billion yuan, and the predicted PE is 213.6 based on the current price.

The breakdown of the latest earnings estimates is as follows:

A total of 11 institutions have rated the stock in the last 90 days, with 10 having a buy rating and 1 having an overweight rating. The average institutional price target over the last 90 days is 122.37.

The above content is compiled by Securities Star based on public information and generated by an intelligent algorithm (Network Information Calculation No. 310104345710301240019), and does not constitute investment advice.