Goldman Sachs: SMIC (0981.HK) Consistent Migration and Expansion; AI and Growing Local Fabless Drive Growth and Capacity Expansion; Buy
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Goldman Sachs maintains a Buy rating on SMIC (0981.HK) with a 12-month H-share target price of HKD 134.0 and an A-share target of RMB 241.6. Following better-than-expected 4Q25 operating profit, the firm expects 2026 growth to be driven by expanding domestic client demand, continued capacity build-out, and a favorable product mix shift toward higher-margin offerings such as memory and BCD power semiconductors.
In 2025, SMIC added 49,000 wafers-per-month in 12-inch equivalent capacity while maintaining high utilization rates. Capital expenditure reached USD 8.1 billion, up 11% year-over-year and exceeding management's prior flat guidance. Goldman Sachs projects 2026 capex will rise another 11% to USD 9.0 billion, fueled by AI-driven demand across domestic GPUs, data center power semiconductors, and edge devices.
Net profit estimates for 2026-29E were lowered by 10%-14%, solely due to higher interest expense assumptions; revenue, gross margin, and operating profit forecasts remain broadly unchanged. The higher H-share target multiple reflects an anticipated acceleration in 2028-29E earnings growth to a 37% annualized rate. Key downside risks include weaker smartphone demand, slower capacity expansion, and potential equipment supply constraints linked to the US Entity List listing. The A-share target incorporates a 196% A-H premium.