Daiwa: Downgrade Semiconductor Manufacturing International Corporation (00981) to "sell", raise target price to HK$29

Yamashita released a research report stating that due to overvaluation, they have downgraded Semiconductor Manufacturing International Corporation (00981) to "sell" and raised the target price from HK$27 to HK$29. At the same time, based on the bank's and management's concerns about the possible overextension of demand affecting its business in 2026, they have lowered their performance forecasts for Semiconductor Manufacturing International Corporation next year. The bank stated that the company's exceptionally long and high capital expenditure cycle also increased their concerns about depreciation and geopolitical burdens, which may create pressure on its structural profitability. The bank pointed out that the flat year-on-year guidance for capital expenditure by SMIC this year came as a surprise, as they believed that the exceptionally high capital intensity from 2020 to 2024 due to geopolitical issues would end this year with the tightening of US export controls. The bank is uncertain whether SMIC will continue to build traditional capacity under this high expenditure cycle, or if they will convert traditional capacity into inefficient expansion similar to 7 nanometers for operations. However, due to the long-term depreciation burden, the continued high capital intensity will continue to drag down its profit margins, increasing the bank's main concerns about depreciation and the structural profitability impact of geopolitical influences.