<Research>HTSC: SMIC Enhances Capital Structure for Greater Profit Flexibility; Rating Maintained at Buy

The analyst rating for SMIC (00981.HK) was maintained at "Buy" by BOCOMI due to the company's planned acquisition of a 49% stake in Semiconductor Manufacturing North China for RMB40.6 billion. This acquisition is expected to enhance SMIC's profitability, as Semiconductor Manufacturing North China primarily focuses on 12-inch wafer foundry operations. Additionally, BOCOMI raised its target price for SMIC to $93 and increased its diluted EPS forecasts for 2026 and 2027, indicating a positive outlook for the company's financial performance. The broker believes that this equity adjustment will benefit shareholders in both the short and long term.

The analyst rating for SMIC is a "Buy" based on several key factors outlined in the report by Huatai Securities. The planned acquisition of a 49% equity stake in SMNC is expected to significantly enhance the company's financial position, with projections indicating an introduction of around USD4.1 billion in external funds to SMSC, potentially boosting cash reserves by about 101%. Additionally, the equity swap acquisition is anticipated to increase the company's net assets, which could drive a 6.3% growth in net asset value per share to RMB20.1. These positive financial enhancements, along with a maintained target price of HKD100 for SMIC's H-shares and RMB192 for its A-shares, support the analyst's bullish outlook on the stock.

The analyst rating for SMIC (00981.HK) is maintained as "Underweight" by JPMorgan due to a cautious outlook. The reasons for this rating include the need for actual earnings data to support a sustained premium valuation, which is not expected in the next 6-12 months. Additionally, despite strong demand for advanced process products, SMIC's gross profit margin (GPM) remains at a low 20% level, and there is limited potential for significant improvement in GPM in the coming years due to rapidly rising depreciation costs. Although JPMorgan has raised its target price from HKD 36 to HKD 57, the overall sentiment remains cautious.

The analyst rating for SMIC (00981.HK) is maintained at "Buy" by BOCI due to several factors. The company reported 3Q25 results that exceeded revenue and gross profit margin expectations. Despite a cautious outlook for 4Q25 and potential challenges in the consumer electronics market, BOCI believes that favorable market dynamics, such as the ongoing tariff war and the development of domestic GPUs, will continue to drive demand for SMIC's advanced processes (7nm and 5nm). Consequently, BOCI has raised its target price from $56.7 to $83.6, reflecting confidence in SMIC's growth potential despite the current market conditions.