UBS raises SMIC stock rating, price target to HK$43.00

On Wednesday, UBS analyst Sunny Lin upgraded Semiconductor Manufacturing International Corp. (981:HK) (NYSE:SMI) stock rating from Sell to Neutral and significantly increased the price target from HK$14.00 to HK$43.00. The adjustment reflects a change in perspective regarding the company’s ability to navigate through operational challenges and competitive market conditions.

Lin’s previous Sell rating for SMIC was influenced by concerns over the impact of the company’s inclusion on the US Entity List, potential headwinds from its ambitious expansion plans, and an oversupply in the mature foundry market. However, recent developments have led to a more positive outlook. Lin noted that SMIC has effectively managed these operational challenges without significant disruptions to its expansion strategy.

The UBS analyst also pointed out that competition in the mature foundry segment is expected to become more manageable in the coming years, particularly in 2025-26, due to potential industry consolidation in China. This anticipated shift could present a more favorable environment for SMIC.

Furthermore, Lin’s analysis of SMIC’s gross margin (GM) outlook suggests that the company is likely to experience a moderating depreciation burden starting from 2026. This adjustment is projected to stabilize the company’s gross margin at over 20% in the next few years, which would be a significant improvement over the 6.1% return on equity (ROE) SMIC has averaged over the past decade. The analyst forecasts an ROE of 9.3% moving forward.

SMIC’s stock adjustment by UBS is based on the firm’s assessment of the company’s recent performance and future prospects, taking into account the broader industry context and specific operational factors pertinent to SMIC’s business.

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