Q2 revenue and net profit both hit record highs.

After trading in Hong Kong stocks on Thursday, Semiconductor Manufacturing International Corporation announced his Q2 results for 2020: revenue of US $939 million, up 18.7% from the same period last year and 3.7% from the previous quarter. Revenue reached a record high for a single quarter, achieving five consecutive quarters of growth; gross profit was 26.5%, unchanged from the same period last year; and net profit was US $138 million, a record high for a single quarter.Overall, SMIC's Q2 revenue is in line with the performance guidelines given earlier.

The production capacity of 14nm Q2 in the south of SMIC is obvious, with a month-on-month increase of 50%.Monthly production capacity increased from 9000 in Q1 to 13500 in Q2 (12 inches, 6000). The design capacity of 14nm is 35000, and the current production release has reached 17%. Previously, SMIC planned to have a production capacity of 15000 pieces per month by the end of 2020.

Q3 gross profit margin is expected to be reduced to 19% 21%.

Q2 revenue, net profit hit a new high, the advanced process is advancing smoothly as scheduled, the performance is still very good. The co-CEO of the company, Dr. Zhao Haijun and Dr. Liang Mengsong, said:In the second quarter, the demand for mature technology application platform was strong, the income of consumer electronics increased significantly, and the advanced process business advanced steadily. The company's capacity utilization rate remains high, expansion capacity will be gradually released, and revenue is expected to continue to grow in the third quarter.

The company expects Q3 revenue to continue to grow 1% Mur3% month-on-month, but cut gross profit margin to 19% Mui 21%.Revenue growth, but gross profit margin downward, the conclusion is that SMIC Q3 costs are rising rapidly. The most likely reason for the increase in SMIC costs isSMIC South 14nm factory is about to start normal depreciation.

Semiconductor Manufacturing International Corporation generally uses the average life method to calculate depreciation of plant and equipment, the depreciation life is 5-10 years, the wafer foundry industry, equipment depreciation life is generally 5-7 years, for 8-inch production line, Semiconductor Manufacturing International Corporation depreciation life is 6 years, 12 inches is 7 years.

In fact, before 2015, the proportion of depreciation in revenue showed a downward trend, and then the increase in depreciation share was mainly due to the increase in the proportion of new production lines caused by capacity expansion and the construction of advanced technology production lines, thus increasing the depreciation burden. The greater the investment of 14nm, the greater the depreciation pressure. This is also the most important reason why many investors are not optimistic about SMIC.However, with the rate of utilization and yield climbing, the company's advanced process may reverse its gross profit by the end of 2022.

Will SMIC's H-share price be in line with A-share price?

SMIC is optimistic for a long time, there is no doubt about this general direction, but what many investors may be more interested in is, will SMIC still have a rapidly rising market before?Here, the author first throws out his personal point of view: SMIC's short-term rapid upward valuation market is basically over, and the future will rely more on fundamental revenue growth to promote.

To make a simple calculation, the valuation of the wafer foundry industry is usually based on ROE-PB logic. The higher the market value of ROE, the higher the PB. Taiwan Semiconductor Manufacturing Co Ltd's 21.62% ROE currently corresponds to 7.85 times PB.Combined with the 4.1x PB given by the market when Taiwan Semiconductor Manufacturing Co Ltd's 14nm process technology was announced, it is assumed that it will be given to SMIC 5x PB.

According to the company's statement, the total owner's equity in 2019 is 71.259 billion yuan, and the initial public offering funds raised is 53.23 billion yuan, so the current net asset of the company is 124.489 billion yuan. This time, 1.686 billion shares were issued to the public, 1.938 billion shares were issued with the over-allotment option, with a total share capital of 7.415 billion shares, corresponding to a net asset of 16.79 yuan per share, and a PB valuation corresponding to the total market capitalization of Semiconductor Manufacturing International Corporation of 622.445 billion yuan and a price of 83.94 yuan per share. (this algorithm does not take into account profits and tax exemptions in 2020 and is conservative.)

SMIC's A shares closed at Rmb84.82, while Hong Kong shares closed at HK $32.75, or RMB29.33, corresponding to PB1.75, slightly higher than United Microelectronics Corp and lower than Huahong. Starting from the bottom line thinking, about HK $30 to buy SMIC, I do not know whether it will soar in the future, but I am not afraid of it plummeting.

Of course, there is also a more optimistic view that the valuation of Hong Kong stock Semiconductor Manufacturing International Corporation is on a par with Science and Technology Innovation Board. As domestic investors went south to buy Semiconductor Manufacturing International Corporation, the highest shareholding was close to 40%, coupled with the shareholding of major shareholders, nearly 80% was domestic shareholding. It can be said that Semiconductor Manufacturing International Corporation is currently priced by domestic capital, so after Science and Technology Innovation Board, the pricing of ACPH will converge, the Hong Kong stock price will benefit, and the PB valuation of Hong Kong stock will be closer to 5 times.It is worth mentioning that SMIC H shares in the previous hit an all-time high of HK $44.8, there has been a wave of continuous reduction, but recently began to increase holdings again.

Looking to the future, in the semiconductor business cycle, with SMIC mature + the continuous release of advanced production capacity, SMIC is expected to get out of the same "stable and happy" Daniel market as the industry leader Taiwan Semiconductor Manufacturing Co Ltd. Firmly believe that time is SMIC's friend.