UBS: SMIC's fourth quarter profit performance is better than usual seasonality, maintaining a "neutral" rating.

UBS released a research report stating that in the fourth quarter of last year, SMIC's profit increased by 4.5% compared to the previous quarter, surpassing the usual seasonal performance and exceeding guidance and market expectations, mainly due to a slight increase in wafer shipments and blended product prices. Other income increased by 64% quarter-on-quarter due to the shipment of photomasks nearing the end of the year. The gross profit margin was 19.2%, in line with the guidance of 18% to 20%, but below market expectations of 20%. The gross profit margin decreased by 2.8 percentage points on a quarterly basis due to the increase in depreciation expenses. In terms of demand, SMIC management indicated strong and continuing demand for BCD technology, memory, and related products, with demand outstripping supply, leading to price increases expected by 2025. In other product areas such as CIS and LCD driver chips, prices are stabilizing as industry capacity is reallocated to the high-demand BCD and other fields. The bank raised SMIC's revenue forecast by 4% for the years 2026 to 2029 to reflect greater localization opportunities and a better supply-demand environment, while lowering profit forecasts by 8% to 18% to account for higher depreciation costs. The bank maintains a "neutral" rating with a target price of 76 Hong Kong dollars.