The first tier of global foundry, the only advanced manufacturing process fab in China. SMIC is one of the world's leading integrated circuit foundries. It can provide 8 inch and 12 inch foundry for various 0.35μm-14nm FinFET technology nodes. According to the 2022 sales ranking of global pure wafer foundry companies, SMIC is ranked fourth in the world and number one among mainland Chinese companies. The company currently has no actual controller. As the largest shareholder of the company, China Information Technology holds a total of 14.97% of the shares. Affected by weak demand in the downstream industry, the company achieved revenue of 33.098 billion yuan, YoY -12.35%, net profit of 3,675 billion yuan, YoY -60.86% in the first three quarters of 2023. As consumer electronics demand gradually heats up, the semiconductor industry cycle will reach an inflection point. It is expected that the company's capacity utilization rate will bottom out in the future and usher in the next round of industry growth cycle.
The foundry industry is developing rapidly, and mainland China is actively deploying production capacity. As the focus of the global integrated circuit industry chain shifts, mainland China's foundry has experienced rapid development in recent years. According to IC Insights, sales in the mainland China foundry market increased from 32.7 billion yuan in 2016 to 77.1 billion yuan in 2022, with a compound annual growth rate of 15.71%, and is expected to reach 90.3 billion yuan in 2023. Furthermore, mainland China is actively deploying foundry production capacity. According to SEMI statistics, the total number of fabs in production worldwide is expected to reach 84, with an investment of more than 500 billion US dollars. Among them, mainland China will build 20 new mature process plants, and the number of new fabs built is the highest in the world. IC Insights expects mainland China's wafer production capacity to rise to 25% of the world's total production capacity in 2026, from 15.3% in 2020 to 25%, and the monthly production capacity of 12-inch fabs will reach 2.4 million wafers.
Advanced manufacturing processes have maintained leadership for a long time, and mature processes continue to rapidly expand production. SMIC is the first fab in mainland China to achieve mass production of 14nm FinFETs. It represents the leading level of integrated circuit manufacturing technology independently developed in mainland China. As demand for chips in the AI field continues to grow rapidly, as the only advanced manufacturing process fab in China, SMIC's investment value is prominent. In terms of production capacity, SMIC has three 8-inch fabs and four 12-inch fabs in Shanghai, Beijing, Tianjin, and Shenzhen, and a 12-inch fab each under construction in Shanghai, Beijing, and Tianjin. Over the next five to seven years, SMIC will have a total of four new projects. After the production expansion project is completed, SMIC will increase its 12-inch wafer production capacity by 340,000 wafers per month. As of the third quarter of 2023, the company's capital expenditure was US$5.126 billion, equivalent to an 8-inch monthly production capacity of 795,800 tablets, and the capacity utilization rate reached 77.1% with the gradual release of new production capacity.
Investment suggestion: Considering that SMIC is the leading company in the domestic foundry industry and is the only domestic foundry to achieve mass production of advanced manufacturing processes, the production capacity of 12 inch and 8 inch wafers is the highest in the country. As demand in the downstream industry gradually recovers, the company's capacity utilization rate is about to bottom up. The company's revenue for 23-25 is estimated to be 445.64/522.59/62.354 billion yuan, respectively, and net profit to mother is 48.06/60.23/7.444 billion yuan, respectively. PB's valuation was 2.4/2.3/2.2 times, respectively. We are optimistic about the company's long-term development, covered for the first time, and gave it a “recommended” rating.
Risk warning: Iterative risks of R&D and technology upgrades; fluctuations in overseas situations may affect the industrial chain; downstream demand falls short of expectations.