The Zhitong Finance App learned that Morgan Stanley released a research report saying that maintaining the SMIC (00981) “holdings reduction” rating, the decline in chip prices is expected to stabilize around the third quarter of this year, but continued increase in depreciation may affect the medium-term gross profit margin. The target price is HK$16.

The report quoted company guidelines. Revenue for the first quarter of this year is expected to rise 0% to 2% quarterly, which is generally in line with expectations; gross margin is expected to be under more obvious pressure, reaching 9% to 11%, which is far lower than the market forecast of 16.4%. According to management, the expected decline in gross margin in the first quarter of this year is due to loss in product portfolio and chip prices. The Group expects year-on-year growth for the whole year, SMIC expects year-on-year growth to be no lower than the industry average in the same market. Furthermore, based on the sharp increase in capital expenditure in recent years, depreciation is expected to increase by about 30% year-on-year, which will have a negative impact on its gross margin situation this year.