Revenue recovered quarterly, and 23Q4 reversed the year-on-year downward trend. The semiconductor industry cycle declined in 23, and the company's performance was under pressure in the short term. The annual revenue fell by about 9% year on year to 45.3 billion yuan, and the adjusted fluctuation was better than the industry average; net profit to mother was 4.82 billion yuan, down 60% year on year. In the second half of '23, demand in the terminal market gradually recovered, and the company's revenue rose quarter by quarter. Q1-Q4's revenue in a single quarter was 102/111/118/12.2 billion yuan respectively, rising from quarter to quarter. Among them, Q4 revenue for the single quarter increased 3% year on year, reversing the year-on-year downward trend.
It ranks first among the foundry in mainland China and continues to expand the domestic market. The company is a leader in the integrated circuit manufacturing industry in mainland China, with leading process manufacturing capabilities, production capacity advantages and service facilities. According to the 2023 sales rankings of the world's pure wafer foundry companies, SMIC ranked fourth in the world and first in mainland China. Facing the trend of regionalization of semiconductors, the company continued to explore the domestic market. In '23, China accounted for more than 80% of sales, an increase of about 6 pcts over the previous year. There is plenty of room for growth in the domestic industrial chain, and the increase in domestic sales ratio will help seize domestic development opportunities.
Continued high capital expenditure promotes continuous expansion of production capacity. While consolidating the short-term operating foundation, the company looks at the medium- to long-term production capacity layout. The company's capital expenditure in 23 years was about 52.8 billion yuan, an increase of 22% over the previous year, mainly to promote the 12-inch factory and production capacity construction plan; the company plans to continue promoting the 12-inch factory and capacity construction plan in 2024, and the capital expenditure is expected to be roughly the same as the previous year. When the company sold about 5.87 million 8-inch wafers in '23, the equivalent monthly production capacity reached 806,000 wafers, with an average annual capacity utilization rate of 75%. The future capacity utilization rate is expected to gradually recover as the industrial chain recovers, driving up the company's performance.
Maintaining a high level of investment in R&D, several projects have already been put into trial production. The company maintained a high level of R&D investment, with 23 years of R&D expenses of 4.99 billion yuan, an increase of about 1% over the previous year; the R&D cost rate was 11%, an increase of 1 pct over the previous year; 562 new invention patents were added throughout the year. In '23, the company's 28 nm ultra-low power platform project, 40 nm embedded storage process vehicle platform project, 4X nm NOR Flash process platform project, 55 nm high voltage display drive automotive process platform projects and other projects have completed R&D and entered small-batch trial production. The company's performance is expected to improve with the volume in the future.
We forecast that the company's net profit for 24-26 will be 26.6/36.1/5.22 billion yuan respectively (the original 24-25 forecast was 86.0/11.83 billion yuan, which mainly adjusted the revenue and gross margin forecast for the wafer foundry business). Using the DCF valuation method, we gave a target price of 57.26 yuan to maintain the purchase rating.
Risk warning
Production equipment is difficult to buy; price competition is too intense; production capacity is falling short of expectations; customer imports fall short of expectations; risk of continued uncertainty about preferential tax rates; risk of uncertainty about other benefits such as government subsidies.