<Earnings First Take> 4Q23 revenue growth guidance of 1-3% q-o-q, in line
- 3Q23 revenue decreased by 15.0% y-o-y; earnings down by 80.0% y-o-y, below expectations due to the increase in new fab start-up costs.
- Management guidance of 1-3% q-o-q revenue growth in 4Q23 is signaling a sign of bottoming out
- We expect shipment to grow by 26% y-o-y with a stable gross margin in FY24. Maintain BUY with TP under review.
3Q23 earnings below expectations. SMIC (981 HK) announced its 3Q23 results yesterday after market close. Revenue decreased 15.0% y-o-y to US$1.6bn (+3.9% q-o-q) due to persistent weakness in IoT-related products. Gross margin decreased by 19.1ppt y-o-y to 19.8% (-0.5% q-o-q) due to ASP pressure amid softness in the consumer electronics end-market. Net profit decreased 80% y-o-y to US$94.0m, partly due to higher operating expenses driven by the increase in new fab start-up costs. EPS was US$0.01. The overall utilisation rate was maintained at 77.1% vs. 78.3% in 2Q23.
Sequential revenue growth signals the shipment decline bottoming out. Management is guiding a q-o-q increase of 1-3% in 4Q23 revenue and gross margin of 16-18% (vs. 2Q23’s 20.3% or 3Q22’s 38.9%), largely in line with market expectations. We expect both shipment and gross margin to bottom out after 4Q23, mainly supported by the improved end-market demand for smartphones and their launch of more advanced node logic products in China. The stock trades at 1.06x FY24F PB, vs. its historical average of 1.1x. We maintained BUY with TP under review.