Event: 1Q22 achieved revenue of US $1.842 billion, an increase of 67% over the same period last year. The 17% month-on-month growth fell within the previous guidance range of 15-17%, of which the revenue from wafer sales increased by 20%. The company's gross profit margin continued to grow to 40.7%, exceeding the upper limit of the previous guidance range of 36%. This was mainly due to the fact that the company postponed the annual repair of some of its scheduled factories and the impact of the epidemic on factories in Tianjin and Shenzhen was lower than the company expected. The company achieved a net profit of US $447 million, an increase of 181% over the same period last year, and a corresponding net profit rate of 24%.

It is expected that the growth rate of 2Q22's performance will slow down and its profitability will weaken month-on-month: thanks to product price increases and product structure optimization (28/40nm and other products account for an increase in the proportion of products), 1Q22's 8-inch ASP has increased by 13% compared with the previous month, which is the main reason for driving performance growth. Considering the divergence of the economy downstream of the semiconductor industry and the downward demand for smartphones and PC, we expect the price increase space for the follow-up company to narrow. At the same time, the short-term impact of the epidemic on the capacity utilization of the Shanghai factory, and the company's postponement of the annual repair of some factories from 1Q22 to 2Q22 will also affect the company's shipments to a certain extent, so the company conservatively guides the 2Q22 revenue growth space at 1% Mel 3%, and the gross profit margin is in the range of 37% Mel 39%. The guided gross margin is lower than that of 1Q22, but it is still higher than the 30.8% level for the whole of 2021, thanks to the increase in ASP.

Expect 2H22 to expand production-driven revenue growth as scheduled: after fully considering the risk of equipment delivery delay and the risk of US license decentralization, the company is guided to add about 8 inches of 130~150K/M capacity in 2022, and it is expected that the new 12-inch plants in Shenzhen and Beijing will achieve mass production in 2022 and release capacity substantially in 2023. Due to the rich internal platform of the company and the flexible allocation and adjustment of production capacity among products, which can hedge the downside risk of prosperity in some downstream areas to a certain extent, we expect the company to maintain full capacity utilization in 2022 under the background of production expansion, and revenue growth is expected to reach 37%.

Profit forecast, valuation and rating: the company's production expansion progress is in line with expectations, maintaining Semiconductor Manufacturing International Corporation's 22-23 return net profit forecast of US $1.769 billion, and increasing 24-year return net profit forecast of US $2.399 billion, corresponding to a year-on-year increase of 4%, 11% and 22%. By the same token, maintain Semiconductor Manufacturing International Corporation (688981.SH)'s 22-23 net profit forecast of 12.4 billion yuan, and increase the 24-year net profit forecast of 15.5 billion yuan, corresponding to a year-on-year increase of 15%, 10% and 13%. The company still has the potential risk of being regulated by the United States, but the licensing of the US supply chain is more active at present. The current price of Hong Kong stock Semiconductor Manufacturing International Corporation corresponds to 0.9 times PB in 22 years, which is at the bottom of the valuation (the company has been valued at 0.9-3.8 times PB since 2020), maintaining the "buy" rating of Hong Kong stock Semiconductor Manufacturing International Corporation (0981.HK). Semiconductor Manufacturing International Corporation of A shares has no obvious valuation advantage, maintaining the "overweight" rating of Semiconductor Manufacturing International Corporation (688981.SH) of A shares.

Risk tips: systematic fluctuations in semiconductor sector valuations; tighter regulatory policies in the United States.