BOCOM International has raised its capital expenditure forecasts for SMIC (00981) to $7.4 billion, $7.6 billion, and $7.2 billion for 2025, 2026, and 2027, respectively (up from previous estimates of $6.85 billion, $6.49 billion, and $5.98 billion). In terms of 12-inch wafer capacity, the firm expects SMIC to add 10,000 wafers per month in Q4 2025, following an increase of 11,000 wafers in Q3 2025. Total capacity additions are projected at 40,000, 50,000, and 55,000 wafers for 2025, 2026, and 2027, respectively.
BOCOM forecasts Q4 2025 revenue and gross margin at $2.42 billion and 19.8%, with slight adjustments to full-year revenue estimates for 2025–2027 to $9.26 billion, $10.97 billion, and $12.28 billion (previously $9.29 billion, $11.00 billion, and $12.31 billion). Gross margins are revised to 21.1%, 23.0%, and 23.3% (from 20.5%, 22.1%, and 24.9%). The firm maintains a "Buy" rating and a HK$90 target price, implying a 3.9x 2026 price-to-book ratio.
Key takeaways from BOCOM’s analysis: - **Q3 2025 Performance**: Revenue reached $2.38 billion (up 7.8% QoQ), in line with expectations, driven by a 3.8% increase in ASP and 4.6% higher shipments. Gross margin of 22.0% exceeded both BOCOM’s estimate (19.3%) and prior guidance (upper bound of 20%). Factors contributing to the margin beat include: 1. Resolution of prior production volatility. Non-controlling interest profit rose 772% QoQ to $124 million but remained below Q1 2025’s $135 million. 2. Higher capacity utilization (92.5% in Q2 vs. 95.8% in Q3) offsetting depreciation pressures. 3. Product mix improvements.
- **Q4 2025 Guidance**: Revenue is expected to be flat to up 2% QoQ, with gross margin at 18–20%, unchanged from Q3 guidance.
- **Demand Outlook**: Memory price hikes may reduce visibility for 2026 demand, though SMIC continues to expand capacity amid strong industry demand. Management noted robust consumer electronics (43.4% of revenue in Q3 vs. 41.0% in Q2), particularly in home appliances, while smartphone revenue share fell 3.7 ppts to 21.5%. Automotive and industrial demand showed modest recovery.
- **AI and Storage Impact**: Rising memory prices due to AI demand may prompt customers to accelerate orders in Q4 2025, but visibility for 2026 (especially in smartphones) remains low. SMIC plans to accelerate capacity expansion in H2 2025, with suppliers resuming normal shipments. The firm expects continued aggressive capacity growth in 2026, benefiting domestic semiconductor equipment makers.
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