SMIC Q3 Revenue Tops Forecasts; FVE Retained, Higher Sales Outlook, Higher Capital Expenditures

We maintain our fair value estimate on Semiconductor Manufacturing International, or SMIC, at HKD 19.2 per H-share, equating to 1.2 times 2021 price/book ratio. The positive impact on our valuation from increasing 2022-25 revenue and operating profit estimates by 11% and 12% on average, respectively, has been canceled by higher capital expenditure assumptions from 2022-24 at USD 3.8 billion each year versus just over USD 3 billion before. The stock appears fairly valued, as the market has priced in revenue contribution from new capacities. We see additional new fab announcements to be potential upside catalysts for SMIC, while new waves of follow-up actions from the U.S. may trigger selling pressure, underpinned by the U.S.' new "Secure Equipment Act" that bars new authorization of permits from companies like Huawei.