SMIC's Strong Q2 Earnings Fail to Convincing Buyers

SMIC (00981.HK), China's leading foundry company, reported strong second-quarter earnings, beating market expectations across the board. The firm's quarterly revenue topped $3 billion for the first time, up 20% quarter over quarter and 36.1% year over year.

Gross margin reached 25.3%, exceeding first-quarter guidance. Hua Hong Semiconductor (01347.HK), another major foundry in China, also posted record revenue of $717.5 million, up 26.8% year over year.

Daiwa Capital Markets raised its SMIC target price from HK$36.5 to HK$40 but maintained a Sell rating, arguing the stock has already priced in the positives. The brokerage believes that while product price increases have improved gross margin outlook, SMIC remains in an intensive capital expenditure cycle with a heavy depreciation burden.

Goldman Sachs, on the other hand, hiked its target to HK$153, betting on sustained high capacity utilization driven by AI-related chip demand and customer expansion. The firm pointed out that SMIC's second-quarter gross margin beat expectations, and looking ahead to the second half, the company should benefit from continued capacity expansion.