SMIC Shares Cheap After Selloff and Overblown Fears; Q2 2022 Gross Margin Likely to Drop

We maintain our HKD 21 fair value estimate for Semiconductor Manufacturing International Corporation after slightly bumping up 2022 gross margin assumptions but leaving our longer-term forecasts unchanged. The stock is undervalued in our view as it is trading below book value and its five-year historical average of 1.1 times book. We believe the stock can move higher once the risks of more U.S. sanctions are reduced, and a rebound in consumer electronics demand boosts sentiment.