JP Morgan: Downgrades Semiconductor Manufacturing International Corporation (00981) to "Neutral" with a target price raised to HK$32.

JPMorgan Chase released a research report stating that Semiconductor Manufacturing International Corporation (00981) is currently trading at historical highs. The bank believes that such a valuation is unlikely to be sustained. They downgraded the rating from "neutral" to "underweight" and raised the target price from 24 Hong Kong dollars to 32 Hong Kong dollars. The report states that Semiconductor Manufacturing International Corporation's profitability and growth are still struggling. The increase in profits in the first quarter was driven by subsidies and early demand from prefabricated components before the US imposed tariffs, and this trend is expected to reverse in the second half of 2025. Furthermore, ongoing price pressures and rising capital expenditures and depreciation may lead to continued low group profit margins. JPMorgan Chase believes that the momentum of continuous growth in the second quarter of 2025 may slow down as the early construction momentum weakens. Additionally, once more capacity is brought online by Semiconductor Manufacturing International Corporation and its Chinese wafer foundry competitors, pricing could become more challenging, keeping gross margins below 20%. JPMorgan Chase maintains a cautious attitude towards Semiconductor Manufacturing International Corporation and believes that Chinese semiconductor equipment suppliers are a better choice for achieving China's semiconductor localization strategy due to their higher-than-expected capital expenditures and strong profit momentum.