Stock Analysis & Valuation Semiconductor Manufacturing International Corporation (0981.HK)

• Previous Close: HK$75.40
• Sector Valuation Confidence Level: Low

Valuation method	Value, HK$	Upside, %
Artificial intelligence (AI)	1709.70	2168
Intrinsic value (DCF)	34.46	-54
Graham-Dodd Method	21.80	-71
Graham Formula	15.80	-79

Strategic Investment Analysis

Company Overview

Semiconductor Manufacturing International Corporation (SMIC) is China's leading semiconductor foundry, providing comprehensive integrated circuit manufacturing services from its headquarters in Shanghai. As a pure-play foundry, SMIC specializes in computer-aided design, manufacturing, testing, packaging, and trading of integrated circuits for clients across North America, China, Asia, and Eurasia. The company operates advanced fabrication facilities offering a range of process technologies while also providing essential supporting services including semiconductor mask manufacturing, IP support, and photomask production. SMIC plays a critical role in China's semiconductor independence strategy and global technology supply chain, serving diverse applications from consumer electronics to industrial and automotive sectors. Despite geopolitical challenges, the company continues to expand its manufacturing capabilities and technological expertise, positioning itself as a vital player in the global semiconductor ecosystem with particular strength in mature node technologies.

Investment Summary

SMIC presents a high-risk, high-potential investment case heavily influenced by geopolitical factors and China's semiconductor self-sufficiency initiatives. The company operates with negative beta (-0.227), suggesting movement counter to broader market trends, which may appeal to investors seeking diversification. Financial metrics show concerning cash flow dynamics with operating cash flow of HKD 3.18 billion significantly outweighed by capital expenditures of HKD -7.66 billion, indicating aggressive capacity expansion. While revenue of HKD 8.03 billion and net income of HKD 493 million demonstrate operational scale, the substantial debt load of HKD 11.6 billion against cash reserves of HKD 6.36 billion warrants careful monitoring. The absence of dividends reflects reinvestment priorities, and investors must weigh China's national semiconductor ambitions against ongoing export control restrictions affecting technology access.

Competitive Analysis

SMIC occupies a unique position as China's champion semiconductor foundry, benefiting from substantial government support and domestic market prioritization amid ongoing US-China technology tensions. The company's competitive advantage stems from its strategic importance to China's technological independence, providing access to preferential financing, domestic customer relationships, and policy support. However, SMIC faces significant technological disadvantages compared to leading international foundries, particularly in advanced node manufacturing below 7nm due to export restrictions on EUV lithography equipment. The company has demonstrated strength in mature nodes (28nm and above) where it can compete effectively on cost and capacity. SMIC's competitive positioning is further complicated by its hybrid role as both commercial entity and national strategic asset, creating both opportunities (secured domestic demand) and challenges (geopolitical scrutiny). The company's massive capital expenditure program indicates commitment to catching up technologically, but progress remains constrained by equipment access limitations. SMIC's future competitiveness will depend on its ability to innovate within constraints, leverage domestic semiconductor equipment progress, and maintain cost advantages in mature nodes while navigating complex international trade dynamics.

Major Competitors

• Taiwan Semiconductor Manufacturing Company (TSM): TSMC is the global foundry leader with dominant market share (~60%) and superior technology, offering the most advanced process nodes (3nm and below). The company benefits from massive scale, R&D investment, and diverse global customer base including Apple, NVIDIA, and AMD. TSMC's weaknesses include geographic concentration risk in Taiwan and higher cost structure. Compared to SMIC, TSMC maintains significant technology advantages but faces different geopolitical pressures and lacks SMIC's access to China's protected domestic market.
• United Microelectronics Corporation (UMC): UMC is a major pure-play foundry focusing primarily on mature and specialty technologies, making it a more direct competitor to SMIC in several segments. The company has strong relationships with automotive and industrial customers and maintains technological leadership over SMIC in several mature nodes. UMC's weaknesses include smaller scale compared to TSMC and limited advanced node capabilities. Unlike SMIC, UMC operates without the same level of government support but also without the geopolitical constraints facing Chinese semiconductor companies.
• GlobalFoundries (GFS): GlobalFoundries is a US-based foundry that, like SMIC, has strategically retreated from the advanced node race to focus on mature and specialty technologies where it holds competitive advantages. The company benefits from US government support through CHIPS Act funding and secure geographic positioning. GlobalFoundries' weaknesses include higher cost structure and dependence on specific technology segments. Compared to SMIC, GlobalFoundries operates with better technology access but lacks SMIC's cost advantages and massive domestic market access.
• SK Hynix (000660.KS): While primarily a memory manufacturer, SK Hynix represents competition in advanced packaging and certain foundry services. The company possesses leading memory technology and strong R&D capabilities. Weaknesses include cyclical memory market exposure and capital intensity. Compared to SMIC, SK Hynix operates with superior technology and global customer relationships but lacks SMIC's positioning in China's domestic semiconductor strategy and foundry specialization.
• Taiwan Semiconductor Manufacturing Company (2330.TW): TSMC's Taiwan listing represents the same competitive entity as its NYSE listing but with different investor base and trading characteristics. The company maintains the same technological leadership, scale advantages, and customer relationships. The primary difference for investors is exposure to Taiwan market dynamics and currency risk. Compared to SMIC, TSMC's Taiwan operations benefit from established ecosystem partnerships but face increasing geopolitical scrutiny regarding Taiwan-China relations.
• Samsung Electronics (009540.KS): Samsung's foundry business represents significant competition in advanced nodes and packaging technologies. The company benefits from vertical integration, massive R&D resources, and leading memory technology that complements foundry services. Weaknesses include internal competition between foundry and product divisions, and cost structure challenges. Compared to SMIC, Samsung possesses superior technology and global reach but lacks SMIC's strategic positioning in China and focus on mature node optimization.