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 closes lower as higher inflation data dampen rate cut hopes

The S&P 500 fell on Wednesday as data showed an unexpected rise in inflation, which is expected to further narrowed the path for Federal Reserve rate cuts. The Consumer Price Index (CPI) for January increased by 3% year-on-year, higher than expected, with expectations that the reading would be the same as December's 2.9%. Compared to the previous month, the index unexpectedly accelerated to 0.5%, higher than the previous month's 0.4% and faster than economists' expectations of 0.3%. The core CPI, which excludes volatile factors such as food and energy, also rose more than expected, up 0.4% month-on-month and 3.3% year-on-year, higher than the expected 0.3% and 3.1%. Fed Chairman Powell insisted at a House Financial Services Committee hearing on Wednesday that the central bank had made "great progress" on inflation, but "we are not quite there yet. So we want to keep policy restrictive for now.” Policymakers are paying close attention to the White House's trade policies, as Trump's aggressive tariffs could push up prices and complicate the Federal Reserve's ability to cut interest rates. According to recent market estimates, if President Trump's plan to impose a 25% tariff on Mexico and Canada goes into effect, the price of a new car would increase by approximately $5,790. A series of policies could further push up inflation.

Hong Kong Stock Connect had a net inflow of HK$7.51bn Wednesday of which Alibaba (9988) had the largest net inflow, reaching HK$3.0bn; followed by Meituan (3690). Tencent (700) recorded the largest net outflow at $1.15bn, followed by Xiaomi (1810).