Guohai Securities has released a research report, stating that based on the principle of prudence and temporarily excluding the potential impact of a proposed acquisition, it forecasts SMIC (00981) will achieve revenues of $11.445 billion, $13.589 billion, and $16.004 billion for 2026-2028, representing year-on-year growth rates of +23%, +19%, and +18%, respectively. The corresponding EPS for 2026-2028 is estimated at $0.12, $0.15, and $0.20. As the leading domestic wafer fab, the company's proposal to issue shares to acquire the entire 49% minority equity stake in SMIC Northern has been approved by the securities regulatory authority, which is expected to further integrate company resources and promote the long-term development of the listed entity. The firm initiates coverage with a "Buy" rating.
Key Points from Guohai Securities
First Quarter 2026 Performance
SMIC released its Q1 2026 report, achieving revenue of $2.505 billion (YoY +11.49%, QoQ +0.67%, compared to prior guidance for flat sequential revenue). The gross margin was 20.1% (YoY -2.41 percentage points, QoQ +0.9 percentage points, compared to prior guidance of 18%-20%). The increase in gross margin was primarily due to changes in the product mix and an increase in average selling prices. The company's minority interest profit was $33 million, a sequential increase of 6.5% from $31 million last quarter.
Second Quarter 2026 Outlook
For Q2 2026, the company expects quarterly revenue to grow by 14%-16% sequentially, with a gross margin projected in the range of 20%-22%, representing a 2 percentage point increase compared to the guidance for the previous quarter. Based on customer demand and the order backlog, the company holds a more optimistic view regarding the overall operational performance for this year compared to the previous quarter.
Changes in End-Market Application Mix and Regional Revenue Concentration
In Q1 2026, categorized by application, smartphones accounted for 18.9% of downstream revenue, computers and tablets for 13.6%, consumer electronics for 46.2%, interconnect and wearables for 7.3%, and industrial and automotive for 14.0%. Consumer electronics remained the primary downstream source. The share for computers and tablets increased by 1.8 percentage points sequentially from Q4 2025, and the share for industrial and automotive also increased by 1.8 percentage points sequentially.
By region, revenue from China accounted for 88.9% of the total, a sequential increase of 1.3 percentage points, indicating a further concentration of revenue.
Sustained Capacity Expansion and High Utilization Rate
Regarding capacity, the company's monthly capacity (converted to 8-inch standard logic equivalents) increased from 1.059 million wafers in Q4 2025 to 1.078 million wafers in Q1 2026. In terms of sales volume, the company sold 2.509 million wafers in Q1 2026, a year-on-year increase of 9.5% but a sequential decrease of 0.2%. The capacity utilization rate reached 93.1% in Q1, a year-on-year improvement of 3.5 percentage points but a sequential decline of 2.6 percentage points. Capital expenditure for the quarter was $1.563 billion, compared to approximately $2.408 billion in Q4 2025.
Risk Factors to Consider
Potential risks include a slowdown in downstream demand; capacity expansion falling short of expectations; intensified industry competition leading to product price declines; geopolitical risks; restrictions on upstream advanced-process equipment and materials; macroeconomic performance falling short of expectations; changes in policy and regulatory oversight; technology iteration risks; and significant capital operations not meeting expectations.
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