Daily Investment Strategy

Daily focus：SMIC（981）

During the 4Q24 earnings call, SMIC's Co-CEO Zhao Haijun stated that the fourth quarter is a traditional off- season for the industry, with customers showing lower willingness. However, based on the company's quarterly addition of 28,000 12-inch wafer capacity, the product mix was optimized, and the company's average selling price increased by 6% qoq. This offset the impact of lower shipments on revenue and the increase in depreciation on gross margin. Considering these factors, the company's 4Q sales revenue achieved growth for the seventh consecutive quarter, with revenue exceeding $2.2 billion, a 1.7% increase compared to the previous quarter, and a 31.5% increase yoy; the gross margin was 22.6%, up 2.1 ppts from the previous quarter. Benefiting from strong AI demand and a moderate demand recovery from non-AI applications, the global semiconductor industry is expected to remain strong in 2025. With the increasing trend of industrial digitization and intelligent development, China's demand for semiconductors is growing. However, since the introduction of various export control measures by Biden, the trend of domestic substitution has become a market consensus in the China market, and SMIC, as a leading company in mainland China, will benefit from the long trend. The company's 1Q25 guidance is for sales revenue to increase by 6-8% qoq, with a gross margin expected to be between 19-21%. Under the premise that there are no major changes in the external environment, the company's 2025 guidance is for sales revenue growth to be higher than the average of comparable peers, and capital expenditure to be roughly the same as the previous year. Overall, SMIC's performance is better than expected, and it directly benefits from the concept of domestic substitution. Therefore, the market is willing to give it a higher valuation. However, this stock has accumulated a lot of gains recently, and the competition in the domestic mature- node chip market continues to be intense, and therefore pricing would remain tough in 2025. Investors may consider take profits first.

S&P 500 falls on Walmart warning, fueling economic jitters

The S&P 500 closed lower on Thursday as retailer Walmart's disappointing sales outlook stoked concerns about consumers and the strength of the economy. Walmart shares fell 6.5% after the company said it expected fiscal year sales to grow 3% to 4%. Meanwhile, the company's fiscal 2026 earnings forecast fell short of analysts' expectations, a possible sign that the big-box retailer may be feeling the effects of waning consumer confidence that's been affected by inflation. Weak guidance overshadowed fourth-quarter earnings that beat expectations. Separately, Palantir's stock price fell 5.2% amid reports that Defense Secretary Pete Hegseth told department officials to prepare for budget cuts. Meanwhile, St. Louis Fed President Alberto Musalem said Thursday that while he still expects inflation to slow toward the Fed's 2% target, he supports keeping interest rates on hold "until inflation convergence is assured."

Hong Kong Stock Connect had a net outflow of HK$6.34bn Thursday of which Alibaba (9988) had the largest net inflow, reaching HK$1.22bn; followed by China Mobile (941). Tracker Fund (2800) recorded the largest net outflow at $8.96bn, followed by HSCEI ETF (2828).