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- October 18, 2016, 11:30 P.M. ET
By Shuli Ren
Semiconductor Manufacturing International Corp. or SMIC (981.Hong Kong), soared 3% in Hong Kong after announcing an expansion project for its Tianjin factory to become the world’s largest 8-inch wafer fab.
In addition to expanding the cutting-edge 8-inch wafer fab, SMIC last week held a groundbreaking ceremony for a new 12-inch wafer fab in Shanghai. Total investment in that fab will be close to 100 billion yuan ($15 billion), reported China’s state-owned Xinhua News Agency. China’s Ministry of Industry and Information Technology and the Shanghai government have given strong support for this project.
While investors are understandably concerned with rising depreciation expenses (as SMIC builds new factories, it’s got to incur more depreciation charges down the road), Nomura Securities believes these two projects can place SMIC to “become global no. 3″, competing against Taiwan’s TSMC (TSM) and Korea’s Samsung Electronics (SSNLF) (and Intel (INTC) of course). The broker this morning raised its price target to 1.50 Hong Kong dollars, or another 50% upside. Analyst Leping Huang wrote:
We think SMIC illustrated a clear capacity expansion plan in the coming years including (1) joint venture in Beijing/Shanghai with local government focusing on leading edge node (14nm/28nm), (2) 100% subsidiary focusing on high margin 8-inch and 12-inch mature node process (40/45nm, 65nm). We expect this approach can help SMIC to simultaneously tackling the top-line growth opportunities in leading edge as well as profit generation opportunity in mature node. Our analysis shows those capacity expansion plan will boost SMIC’s capacity by 250% if equipment are fully installed.
J-curve ROE improvement via operating leverage expansion. We forecast SMIC to maintain 23% CAGR revenue growth from 2016-2020F, driven by rising demand from Chinese customers. On the cost side, we expect SMIC’s EBITDA Margin to improve from 34% in FY15 to 43% in FY20F thanks to the improving operating leverage.
http://blogs.barrons.com/asiastocks...rlds-largest-8-inch-wafer-fab-50-upside-seen/
@Bussard Ramjet