<Earnings First Take> 4Q23 earnings fell by 55%; weak FY24 revenue guidance a negative surprise
- 4Q23 earnings down by 54.7% y-o-y, better than expected on stronger opex control
- Disappointing FY24 revenue guidance as clients are still cautious about inventory due to economic uncertainty
- We expect ASP and gross margin to take longer to recover and remain weak throughout 2024. Rating and TP under review
4Q23 earnings down 55%, better than expected. SMIC (981 HK) announced its 4Q23 results yesterday after HK market close. Revenue increased 3.5% y-o-y to US$1.7bn (+3.6% q-o-q) due to the recovery in the smartphone end-market. Gross margin decreased 15.6ppt y-o-y to 16.4% (-3.4% q-o-q), in line with the management’s guidance. Net profit decreased 54.7% y-o-y to US$175.0m, above market expectations due to better opex control. EPS was US$0.02. The overall utilisation rate was maintained at 76.8%, vs. 77.1% in 3Q23.
Expect short-term share price pressure on disappointing FY24 revenue guidance. Management is guiding for a q-o-q increase of 0-2% in 1Q24 revenue with a y-o-y gross margin contraction of between 9.8ppt to 11.8ppt, steeper than market expectations of a 4.0ppt shrinkage. The more pessimistic outlook on the gross margin was due to (1) ASP pressure from fierce industrial competition and (2) slow de-stocking of clients’ inventories. For FY24, the company expects mid-single-digit y-o-y growth in revenue vs. the market expectation of 18.4%. While shipments have bottomed out, showing a 6.4% y-o-y and 9.0% q-o-q increase, we anticipate the ASP and gross margin would take longer to recover and remain weak throughout FY24. The weakness would be due to clients remaining cautious about inventory due to economic uncertainty. Rating and TP are under review.