SMIC(981.HK)：TARIFF WAR AND GPU BAN BENEFICIARY DESPITE NEAR-TERM PRESSURE-格隆汇

机构：中银国际
研究员：Alex LIN/Alina LIN

　　SMIC released mixed 1Q25 results with GPM of 22.5% beating high-end guidance, boosted by consumption subsidy driven demand and rush orders ahead of tariffs. However, ASP down 12% QoQ was a major miss, due to new production line ramp up incident affecting yield rate according to Company. Such impact will last till early 3Q25, thus resulting in weak 2Q25 guidance of QoQ declining revenues and GPM. Mgmt. overall maintains cautious tone on 2H25 upon potential UTR pressure from front-loaded demand and consumer electronic de- stocking, and increasing capacity competition. The stock has underperformed HSI by 17.7% since our last downgrade on 12 Feb. However, with the tariff war outbreak and Nvidia GPU ban, we believe the stock will now find support and any further escalation will bring back sentiment meaningfully. We upgrade the stock from HOLD to BUY with a slightly lower TP of HK$50.0 based on unchanged 2.4x P/B.
　　Key Factors for Rating
　　1Q25 results mixed: revenue grew 28% YoY to US$2,247m, missed BOCIe and consensus by 6% and 5% respectively, mainly due to an unplanned incident during annual facility maintenance which affected subsequent production yield. GPM was flat QoQ at 22.5%, above the high end of guidance, mainly thanks to robust 12-inch wafer shipment driven by rush order from consumer electronics and industrial. OPEX ratio declined from 12.9% in 4Q24 to 8.7% in 1Q25, due to decreased R&D as 1Q25 capacity UTR was relatively packed. NI recorded US$188m, missing BOCIe and consensus by 24% and 18% mainly due to increase in minorities and decrease in investment income.
　　2Q25 guidance missed: mgmt. guided 2Q25 revenue decline of c.-5% QoQ and GPM of c.19%, massively missing consensus of +8.5% QoQ and 21% respectively, mainly resulting from the continual impact from the above incident, which leads to temporarily lower yield rate and ASP.
　　Uncertainty remains for mature node in 2H25. Mgmt. expects a potential de-stocking for consumer electronic due to pull-in demand, while auto and industrial demand may see a rebound in Aug-Sep. SMIC expects to maintain its commitment of +20% GPM through resilient pricing and reasonable capacity expansion. As SMIC keeps ramping up its new capacity, we expect ASP and GPM may still be under pressure as it takes months to achieve optimal UTR.
　　Escalating tariff war may be a positive. Mgmt. assesses limited direct tariff impact on the foundry operations. Meanwhile, global localisation trend will keep bringing opportunities for SMIC, evidenced by robust 1Q25 revenue growth from SMIC’s American (+11% YoY, 48% QoQ) and Eurasian (+16% YoY, +62% QoQ) customers.
　　Advanced node: we expect the intensifying AI server ban (such as H20) will boost demand for domestic GPU, which subsequently translates to SMIC’s growing advanced node business. We expect SMIC’s advanced node capacity to increase as it consolidates China’s third party existing foundry capacity.
　　Key Risks for Rating
　　Sino-US relationship and supply risk; intensifying price competition in mature node; slow advanced node breakthrough; macro and end demand risks.
　　Valuation
　　We cut 2025/26/27E EPS estimates by 18%/12%/13% to factor in the maintenance incident as well as the overall increasing market competition on mature node. However, as the tariff war and GPU ban may escalate in our view, we believe SMIC will stand out as a major beneficiary despite the near-term pressure. We upgrade the stock from HOLD to BUY. We base our new TP of HK$50.0 based on unchanged 2.4x P/B.