U.S. Congress Documents on SMIC Licenses in Line With Our Base Case Assumptions; No Change to FVE

We retain our fair value estimate of HKD 19.20 on SMIC as new documents from the U.S. Congress are consistent with our base case view that SMIC will not gain access to sub-14nm equipment. The Republican Foreign Affairs Committee has publicized documents pertaining to export licenses to Huawei and SMIC. Those documents show over 90% of license applications were granted regarding SMIC with an aggregate contract value of USD 41.9 billion from Nov. 9, 2020 to April 20, 2021. Even though shares of SMIC rallied over 4% on Friday in Hong Kong, we think fundamentals of the company have not changed and investors will focus on its aggressive expansion plans and overall chip shortage after the initial excitement wanes.