Investment Highlights

On February 11, 2025, SMIC announced its Q4 2024 earnings report.

Full-year revenue exceeded US$8 billion for the first time, with revenue from Chinese customers increasing year-on-year In 2024, the company achieved revenue of US$8.03 billion, a year-on-year increase of 27%, a record high, exceeding the mid-single-digit year-over-year growth guidance given at the beginning of '24; Gross profit margin was 18%, a decrease of 1.3 percentage points year-on-year, mainly due to the increase in depreciation; Capital expenditure was US$7.33 billion, basically unchanged year-on-year; At the end of the year, the monthly production capacity of 8-inch standard logic was 948,000 pieces, an increase of 142,000 pieces compared with the end of 2023 and 64,000 pieces compared with the end of 24Q3, and the total shipment exceeded 8 million pieces. The average annual capacity utilization rate was 85.6%, an increase of 10.6 percentage points year-on-year.

The company said that in 2024, the semiconductor market as a whole will show a recovery trend, the inventory of chip design companies will roughly return to a healthy level, and the main downstream industries will transfer to the domestic industrial chain at a faster rate. Benefiting from the impact of many factors such as the recombination of the industrial chain catalyzed by the demand for localized manufacturing, the increase in customer market share, and the national stimulus consumption policy, the revenue from Chinese customers increased by 34% year-on-year.

Driven by the policy of stimulating consumption, customers are more willing to replenish inventory, and there are more urgent orders for consumer electronics, Internet, mobile phones, etc., at the same time, the rapid penetration of intelligent driving is expected to drive the demand for related CIS, analog IC and other products, and the overall off-season in the first quarter is not light. The company expects 25Q1 sales revenue to increase by 6~8% month-on-month, that is, 2.340~2.384 billion US dollars; The gross profit margin was 19%~21%, a year-on-year increase of 5.3~7.3 percentage points, and a month-on-month decrease of 1.6~3.6 percentage points.

In the absence of significant changes in the external environment, the company expects sales revenue growth in 2025 to be higher than the average of comparable peers, capital expenditures to be broadly flat year-over-year, and depreciation to increase by approximately 20% year-over-year. We believe that when the capacity supply of some mature process nodes is relatively sufficient, capital expenditure may tend to expand higher-end production capacity, which is expected to drive the localization of high-end products. The company said that the overall customer product inventory is relatively healthy, and in 2025, in addition to the continued rapid growth of artificial intelligence, the demand in various application fields in the market will be flat or moderately growing.

24Q4 gross profit margin increased year-on-year, and the domestic chain of automotive chips switched to the starting stage24Q4 The company achieved revenue of US$2.207 billion, an increase of 31.5% year-on-year and 1.7% quarter-on-quarter, achieving seven consecutive quarters of growth, mainly due to the increase in the number of wafers sold, the increase in capacity utilization and the change in product mix; profit was US$271 million, up 14.2% year-on-year and 21.4% quarter-on-quarter; gross profit margin was 22.6%, an increase of 6.2 percentage points year-on-year and 2.1 percentage points month-on-month; The capacity utilization rate was 85.5%, an increase of 8.7 percentage points year-on-year and a decrease of 4.9 percentage points quarter-on-quarter.

In terms of application fields, the revenue of smartphones in 24Q4 was US$494 million, a year-on-year increase of 4.94% and a decrease of 3.18% month-on-month, accounting for 24.2% of the total wafer revenue; computer and tablet revenue was US$390 million, a year-on-year decrease of 18.26% and a quarter-on-quarter increase of 16.02%, accounting for 19.1% of total wafer revenue; consumer electronics revenue was $821 million, a year-on-year increase of 130.89% and a quarter-on-quarter decrease of 6.00%, accounting for 40.2% of total wafer revenue; Connected and wearable revenue was $169 million, up 23.51% year-on-year and 0.83% quarter-on-quarter, accounting for 8.3% of total wafer revenue; Industrial & Automotive revenue was $167 million, up 41.29% year-over-year and 3.40% sequentially, accounting for 8.2% of total wafer revenue.

In the automotive field, the company said that the process of transferring and switching from the automobile and other industries to the domestic chain has entered the stage of mass production, and some products have been officially mass-produced. The company plans to cooperate with terminal machine factories to increase the proportion of automotive product sales to 10% in the future; Some of the existing product platforms are being verified for automotive products, and it is planned to upgrade the platform and gradually increase the volume within three years, when the corresponding production capacity will meet the demand of one-third of the domestic automobile market.

Investment Advice: Based on the company's 2024 earnings forecast, we adjust our previous performance forecast for the company. It is estimated that from 2024 to 2026, the company's revenue will be 577.96/670.43/75.088 billion yuan, with a growth rate of 27.7%/16.0%/12.0% respectively; The net profit attributable to the parent company was 36.99/53.58/6.989 billion yuan, with a growth rate of -23.3%/44.8%/30.4% respectively. As a leading wafer foundry in Chinese mainland, the company has a leading process in China, and its capacity expansion is proceeding in an orderly manner, and its performance is expected to continue to grow with the gradual recovery of the end market. Maintain "Buy" rating.

Risk warning: the risk that the downstream terminal market demand is less than expected, the risk that new technologies, new processes and new products cannot be industrialized as scheduled, the risk of intensified market competition, the risk that the progress of capacity expansion is less than expected, and systemic risks.