Hot Stock Commentary | Revenue Surpasses $3 Billion, SMIC's Performance Exceeds Expectations

💡Core insight

$SMIC (00981.HK)$ Disclosed Q2 earnings,Overall performance significantly exceeded market expectations. The company's quarterly revenuesurpassed the $3 billion mark for the first timemilestone, with profit margins demonstrating strong upward elasticity. Currently, the company is at a critical juncture in the transformation of its profitability model, with core drivers shifting from the traditional "increase in capacity utilization" to"price improvement and product mix upgrade"as a dual-engine drive.

▎ Comprehensive Earnings Surge

In Q2 2026, SMIC achieved revenueof USD 3.006 billion(YoY +36.06%, QoQ +19.96%), with strong double-digit growth both year-over-year and quarter-over-quarter,exceeding the upper end of the company’s previous guidance.Revenue for 3Q26 is expected to grow 2%-4% QoQ. Net profit attributable to shareholders reachedUSD 479 million, a significant YoY increaseof 2.62 times;although this included approximately USD 276 million in other net gains,operating profit from core business showed non-linear growth, reflecting a marked improvement in the company’s earnings elasticity.。

Q2 gross marginrose to 25.3%, up 4.9 percentage points year-over-year and 5.2 percentage points quarter-over-quarter, surpassing the midpoint of the 20%-22% guidance range. The primary driver was price increases within the quarter, followed by optimization of the product mix. The company expects Q3 margins to continue rising to 26%-28%, representing a median increase of 6.6 percentage points year-over-year and 1.7 percentage points quarter-over-quarter.

▎ Volume and prices both rise; comprehensive structural upgrade

The company did not adopt a粗放 (extensive) model of uniform industry-wide price hikes, but instead implemented precise pricing based on supply and demand in segmented markets: Starting from February 2026, it negotiated price increases only with customers in capacity-constrained sectors such as computing power. Price increments for Q3 have been largely finalized,and will be fully reflected in the gross margin for the quarter; prices remain unchanged for segments with weak demand, such as mobile phones and panel drivers, prioritizing commitments to long-term strategic partners. Prices in these lower-margin segments are expected to see a slight rebound as demand recovers in the future.

On this basis, Q2 8-inch equivalent wafer shipmentsreached 2.869 million pieces(QoQ +14.4%), with capacity utilization steadily climbing to 93.7%. The blended wafer ASP (8-inch equivalent)rose to approximately USD 991 per piece, achieving year-on-year and quarter-on-quarter growth (+13.3% / +5.7%). Meanwhile, depreciation and amortization included in cost of salesincreased to USD 925 million, with total depreciationrising 37.9% year-on-year to USD 1.212 billion; gross margin still saw a significant increase,indicating that the ASP growth and benefits from structural optimization have partially offset the additional depreciation costsFull-year 2026 depreciation is projected to approach $5 billion, representing a year-over-year increase of approximately 30%. Depreciation is expected to reach a阶段性 peak in 2027 based on current capacity expansion plans. The company will prudently assess the impact on gross margin when making expansion decisions, aiming to effectively dilute unit fixed costs by maintaining a high capacity utilization rate of around 95%.

Structural optimization is proceeding in tandem: revenue share from 12-inch wafersrose to 78.2%, up 1.8 percentage points quarter-over-quarter, indicating a higher weight of revenue from advanced and mainstream nodes; revenue share from the China regionincreased to 90.2%(up 6.1 percentage points year-over-year), while the share from the US regiondeclined to 8.2%，Supply chain localization, substitution by domestic customers, and the回流 of overseas orders continue to be the most significant drivers of revenue growth.Downstream applications are also showing healthy differentiation: the consumer electronics base remains solid (accounting for 44.2%), while the share of industrial and automotive businessesrose to 16.5%(YoY +5.9 ppts, QoQ +2.5 ppts), effectively hedging against the shrinking share of traditional smartphones (which dropped to 16.9%), indicating thatthe company's growth engine has clearly shifted from traditional mobile phones to broad consumer electronics terminals, industrial automotive sectors, AI-related chips, and specialized process platforms,characterized by longer product certification cycles, higher customer stickiness, and a more favorable gross margin structure.

▎ Depreciation cycle is no longer the sole variable; valuation offers attractive opportunities

Over the past year, the market's biggest divergence regarding SMIC centered on whether high capital expenditure and heavy depreciation would suppress profit margins in the long term. The Q2 results signaled to the market that while the company has not escaped depreciation pressure, ithas already demonstrated the ability to navigate through the depreciation cycle.；The current improvement in the company's gross margin is no longer a simple cyclical rebound, but rather resembles a shift in the profit-driven model from "depreciation shock-dominated" to "price and mix-dominated."From a valuation perspective, the company's forward P/E ratio for 2027 stands at around 40x, slightly below its historical average over the past two years.Valuation is attractive, with considerable long-term growth potential。

[Investment Advisory Information]

Yu Shilin, Licensed Representative, Central Entity Number: ATQ882

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