Goldman Sachs: Reiterates Buy Rating on Semiconductor Manufacturing International Corporation (00981) with a target price of 62.7 Hong Kong dollars.

Goldman Sachs released a research report, reiterating a buy rating on Semiconductor Manufacturing International Corporation (00981) with a 12-month target price of HK$62.7. This is based on an expected P/E ratio of 35 times in 2028 and discounted to 2025 with a 15% equity cost. The target P/E multiple is determined based on the correlation of earnings growth per share of Semiconductor Manufacturing International Corporation and the P/E growth of its peers. Considering the firm's expectation that Semiconductor Manufacturing International Corporation will maintain a steady growth trend in the long term, its stock price is currently below the historical average P/E ratio, making it attractively valued. Goldman Sachs' main points are as follows: Capital expenditure plans are steadily progressing, China's semiconductor prospects are positive, and the terminal market is gradually recovering. On March 21, the bank held a small meeting with the CEO of Semiconductor Manufacturing International Corporation in Shanghai. The main topics of discussion revolved around the growth prospects of the Chinese semiconductor industry and Semiconductor Manufacturing International Corporation's 2025 capital expenditure plan. Overall, the management expects the market performance to be better than last year, thanks to positive expectations from terminal clients. The management continues to expect steady progress in capital expenditure in 2025. The bank maintains an optimistic outlook on the long-term growth trend of Semiconductor Manufacturing International Corporation, as they expect it to be supported by sustained local demand for local production. 2025 industry demand outlook: The management expects that this year, the recovery of demand for Chinese semiconductors will be better than last year due to the support of optimistic expectations from terminal clients. While production volumes are increasing, the management also notes a slight decrease in the average selling price (ASP), which to some extent offsets the increase in costs. Steady progress in capital expenditure plans: The management continues to expect that the capital expenditure in 2025 will proceed steadily. Semiconductor Manufacturing International Corporation focuses on eight mature process technology platforms, aiming to expand its product portfolio and provide customers with a comprehensive one-stop solution. To maintain a certain level of capacity utilization, they will adjust the pace of capacity release. The bank holds an optimistic view of Semiconductor Manufacturing International Corporation, expecting it to benefit from the sustained local demand for local production. The bank expects the company's revenue in 2025 to increase by 36% year-on-year, reaching $11 billion, faster than the 27% year-on-year growth in 2024. With the increase in the proportion of 12-inch products and the improvement in capacity utilization, the gross profit margin is expected to rise to 20.3% in 2025 (full year 18.0% for 2024, with a guidance of 19%-21% for Q1 2025). The bank expects the improvement in revenue and gross margin to drive Semiconductor Manufacturing International Corporation's net profit to grow over the next two years, reaching $1.1 billion in 2025 (compared to $493 million in 2024). Investment logic: In terms of capacity and revenue scale, Semiconductor Manufacturing International Corporation is China's largest wafer foundry, covering a technology range from 0.35 microns to 14 nanometers node, widely used in smartphones, consumer electronics, personal computers, industrial, automotive and other fields. The bank is optimistic about Semiconductor Manufacturing International Corporation's long-term growth, driven by the increasing demand from local customers without a wafer fab. In the short term, with the improvement in capacity utilization offsetting the impact of price competition and depreciation amortization pressure, the bank expects its profit margin to gradually rise.