Xiaomo: Raising the target price of SMIC (00981) to HK$78 to maintain a “neutral” rating

The Zhitong Finance App learned that J.P. Morgan Chase released a research report stating that it maintained the SMIC (00981) “neutral” rating and raised the target price from HK$67 to HK$78. According to J.P. Morgan Chase, SMIC's gross profit margin for the second quarter was 25.3%, 3.6 to 4 percentage points higher than the bank's and market expectations; the third-quarter gross margin guidance was 26% to 28%, which is also far higher than the market's forecast of about 22%. The main driver was strong demand related to artificial intelligence, which led to tight supply and price increases.

Motong believes that price increases will be a sustainable driving force for revenue and gross margin in the coming quarters. However, the room for further growth may be limited by increased depreciation burdens. The 2026-2027 depreciation year is expected to increase by about 30% and 20% year-on-year, higher than the 27% and 16% increase in revenue. The bank believes that if a recovery in consumer demand drives stronger and more widespread price increases, or yield increases drive stronger advanced node growth, it will be a potential upward risk for stock prices.