SMIC Hong Kong Stocks Released Unaudited Results for the Fourth Quarter of 2024, with 24Q4 revenue of US$2.207 billion, +31.5% YoY/+1.7% QoQ, which was the upper end of the previous quarter's guidance; Gross margin was 22.6%, +6.2pcts YoY/+2.1pcts QoQ, exceeding the upper limit of guidance. The company said that in the first half of the year, there was an increase in urgent orders, guiding 25Q1 revenue to increase year-on-year growth; The company maintains a steady pace of capacity expansion, and expects capital expenditures to be flat by nearly $7.5 billion year-on-year in 2025. Maintain an "overweight" investment rating.

24Q4 revenue is close to the upper limit of guidance, and gross margin exceeds the upper limit of guidance. 24Q4 revenue of $2.207 billion, +31.5% YoY/+1.7% QoQ, the upper end of the previous quarter guidance (flat to 2% QoQ); Gross margin was 22.6%, +6.2pcts YoY/+2.1pcts QoQ, exceeding the upper limit of guidance (18-20%); The overall operation of the joint venture improved in the fourth quarter, with minority interests +161% year-on-year and +119% quarter-on-quarter in US dollar terms.

Consumer, connected and wearable businesses grew well, with 12-inch outperforming 8-inch wafers. 1) By downstream: 24Q4 smartphone revenue was $494 million, +4.9% year-on-year/-3.2% month-on-month; PC & Tablet revenue of $390 million, -18% YoY/+16% QoQ; consumer electronics revenue was $820 million, +131% year-on-year/-6% quarter-on-quarter; Connected & Wearables revenue was $169 million, +23.5% YoY/+0.8% QoQ; Industrial & Automotive revenue of $167 million, +41% YoY/+3.4% QoQ; 2) By wafer size: 24Q4 8-inch wafer revenue was $400 million, -1.5% year-on-year/-10% month-on-month; 12-inch wafer revenue was $1.645 billion, +42% YoY/+2.3% QoQ.

In 24Q4, ASP continued to improve month-on-month, and capacity utilization declined month-on-month due to the impact of new capacity verification. As of 24Q4, the company's total production capacity of 8 inches was 947,600 pieces/month, an increase of 63,000 pieces month-on-month; 24Q4 equivalent to 8-inch wafer shipments of 1,991,800 pieces, +19% year-on-year/-6% quarter-on-quarter, the quarter-on-quarter decline is mainly due to the traditional off-season in the fourth quarter, and customers' willingness to take goods is relatively low; The capacity utilization rate was 85.5%, -5pcts month-on-month, mainly due to the new capacity verification drag; The equivalent 8-inch ASP is 1025 US dollars/piece, +6.1% month-on-month.

The company said that in the first half of 2025, there will be an increase in urgent orders, and it remains to be seen in the second half of the year. Looking forward to the first half of 2025, the company said that the increase in urgent orders in the first half of the year drove the capacity utilization rate to perform well, mainly due to (1) customers pulling goods quickly based on the international situation and other reasons; (2) Consumption stimulus policies in the Chinese market have led to an increase in sales volume and customers' willingness to stock up. The company has a wait-and-see attitude for the second half of 2025 for the time being, saying that it needs to observe whether the consumption stimulus policy and customer pull goods can be sustained, and then observe whether the capacity utilization rate can be maintained at a high level.

The company guides 25Q1 revenue growth sequentially, and 2025 capex flat year-over-year. 1) Performance guidance: The company guides 25Q1 revenue growth of 6-8% sequentially to $2.36 billion in median terms, +35% year-on-year; Gross profit margin of 19-21%, maintaining a high level; The company's capital expenditure in 2024 is US$7.33 billion, guiding 2025 capital expenditure to be flat year-on-year and sales revenue growth higher than the average of comparable peers. Depreciation is expected to increase by 20% year-on-year in 2025, and the gross profit margin will be under certain pressure, but the company's capacity utilization rate will increase and new technology iteration will support ASP, which will hedge the depreciation impact to a certain extent; 2) Future planning: The company maintains a steady pace of expansion, which is equivalent to adding about 50,000 pieces/month of 12-inch production capacity every year; The company has recently increased orders for low-priced products, and ASP will decline slightly in 25Q1 and 2025.

Investment advice. The company's 24Q4 revenue reached the upper limit of the guidance, the gross profit margin exceeded the upper limit of the guidance, and the ASP continued to improve sequentially. Looking forward to 25H1, the company will guide customers to pull goods in advance, resulting in an increase in urgent orders, and the capacity utilization rate is expected to perform well. Combined with the performance report, we expect the revenue in 2024/2025/2026 to be 576.9/672.1/75.28 billion yuan, the net profit attributable to the parent company is expected to be 37.0/45.9/5.60 billion yuan, and the corresponding PE is 224.8/181.3/148.7 times, maintaining the "overweight" investment rating.

Risk warning: the risk of oversupply of production capacity, the risk of equipment delivery falling short of expectations, the risk of sanctions for advanced processes, the risk of capacity expansion falling short of expectations, and the risk that the recovery of industry prosperity is less than expected.