SMIC (0981.HK/688981.SH) Beijing time on the evening of August 11, Changqiao Hong Kong Stock Exchange released its 2022 second quarter financial report (as of June 2022). The key points are as follows:
1, overall performance : revenue and gross profit margin both reached the guidance upper limit. SMIC achieved revenue of US$1.903 billion in the quarter, a month-on-month increase of 3.3%, and the revenue side of reached the company's guidance expected upper limit (1-3%) . The company's gross profit margin fell this quarter, 39.4%, and the gross profit margin of also reached the company's guidance expected upper limit (37-39%) , better than market expectations (38.24%).
2. Look at the three core indicators in detail: revenue, gross profit margin and capacity utilization rate. revenue side has been split by volume and price, and SMIC's revenue growth this quarter mainly comes from the increase in shipments. Under the influence of the epidemic in the second quarter, the expansion of production capacity provided a guarantee for the company's shipment growth. , while the growth of product prices in this quarter stagnated, and the overall industry showed signs of peaking . Through cost splitting, the decline in 's gross profit margin this quarter was mainly due to the increase in the cost side, among which the increase in the company's capital expenditure this quarter directly brought about the growth of the fixed cost item. In terms of capacity utilization rate of , , 's capacity utilization rate in the second quarter fell from the previous full load to 97.4%. As the company still maintained the pace of expansion in the second quarter, Dolphin Jun believes that the decline in capacity utilization this quarter is mainly due to factors such as the Shanghai epidemic and other factors .
3. Business progress: The drag on mobile phones has weakened, and 12 inches is still the company's focus. The proportion of smartphone business continued to decline to 1/4 in the quarter. Although the mobile phone market performed sluggishly in the first half of the year, as the proportion of the company's mobile phone business decreased, the impact on SMIC was gradually weakening. With the release of new production capacity in the second quarter, the company's 12-inch revenue increased to nearly 70%, and will still be the focus of the company's future development . With the impact of events such as the Chip Act, the demand for local manufacturing of chips has been further promoted, and the proportion of customers in mainland China and Hong Kong has hit a record high in this quarter.
4, next quarter guidance : SMIC expects revenue to increase by 0-2% month-on-month in the third quarter of 2022 (corresponding to US$1.903-1.941 billion), and gross profit margin is 38-40%. revenue-side guidance is slightly lower than market expectations (US$1.955 billion), while gross profit margin guidance is better than market expectations (36.31%) .
Overall view :
SMIC, the overall performance of this quarter was qualified . 's revenue side and gross profit margin in this quarter both reached the upper limit of the company's guidance, but at the same time, there was no obvious performance beyond expectations.
Changqiao Dolphin Jun split the business of SMIC, the company's revenue growth this quarter mainly comes from the expansion of production capacity, and there is no obvious driving effect on the price side. In other words, the continuous price increase of the company's products (wafers) in the past few quarters has begun to show signs of stagnation this quarter. , while the price does not increase and product costs rise, the gross profit margin of company this quarter has also begun to decline .
inventory continues to rise and price growth begins to stagnate, all of which suggest signs of a top-up in the industry. is also just like the company's industry risk warning in this financial report, "this round of cycle adjustment will last at least until the first half of next year" .
In the short term, SMIC has given guidance for the next quarter . The company's revenue in the third quarter increased by 0-2% month-on-month, and its gross profit margin was 38-40%. Based on the previous third-quarter guidance provided by UMC (price does not increase, shipment volume does not increase), Dolphin Jun believes that SMIC's revenue growth in the third quarter mainly comes from the increase in shipment volume, and the company will still expand production of in the third quarter.
In the medium and long term, SMIC has a certain alpha in the downward phase of the industry. The industry has entered a downward phase, and the logic of price increases is no longer there. SMIC's alpha is mainly at the level of quantity, from the growth of shipments and the expansion of production capacity. Since China's semiconductor market demand accounts for more than 30% of the world, Chinese local companies account for less than 10%. With the fermentation of events such as the Chip Act, domestic semiconductor manufacturers have been intensified to prioritize orders to domestic local manufacturing plants to ensure the safety of the supply chain.Therefore, benefiting from the large demand for domestic substitution, SMIC will continue to expand its production capacity.
Dolphin Jun believes that although the industry declines and has a β impact on the company and product prices, the expansion of quantity is also expected to bring α gain to SMIC in the downward market.
Regarding this financial report, Changqiao Dolphin Lord mainly focuses on the following issues:
1. Overall performance vs. market expectations: SMIC's three core indicators, revenue, gross profit margin and capacity utilization rate, have they performed beyond expectations?
2. Specific sources of revenue growth: How much did the company's revenue growth, volume and price contribute respectively in this quarter? Due to the impact of the epidemic in Shanghai and other places, how is the company's capacity utilization rate?
3. Source of the increase in gross profit margin: Can the company's gross profit margin meet expectations this quarter, and how are the changes in price and cost? Will the price increase of raw materials still have an impact?
4. Business development: How is the downstream performance of SMIC? How are the progress of domestic semiconductor customers?
5. In terms of operating performance: What changes have occurred in SMIC's operating areas this quarter? Are inventory and accounts receivable reasonable? How is EBITDA?
The following is a detailed analysis of Changqiao Dolphin Jun
1. Core indicators look at SMIC: revenue, gross profit margin and capacity utilization rate
Core indicators 1: revenue side
In the second quarter of 2022, SMIC achieved revenue of US$1.903 billion, a month-on-month increase of 3.3%, reaching the company's guidance expected upper limit (1-3%). The growth on the price side of began to stagnate, and the company's revenue growth this quarter was mainly driven by the increase in shipments. The increase in wafer shipments mainly comes from the company's expansion of production.
from the perspective of quantity and price, the main driving force of SMIC's revenue growth this quarter:
1) the dimension of quantity . SMIC's wafer shipment volume this quarter (equivalent 8 inches) reached 1887,000 pieces, a month-on-month increase of 2.5%.
2) price dimension , SMIC's single wafer revenue this quarter (equivalent to 8 inches) was US$1,009, a month-on-month increase of 0.8%.
From the perspective of volume and price split, the main driving force of the company's revenue growth this quarter comes from the increase in wafer shipments . The company's total capital expenditure reached US$2.5 billion in the first half of the year, with the addition of 53,000 8-inch tablets and a monthly production capacity of 53,000 pieces. The expansion of production capacity is the main reason for the company's increase in shipments. , while the price-side growth trend weakened significantly, single wafer revenue this quarter was basically the same as last quarter, which also implies that the upward cycle of this chip industry has peaked.
Looking ahead to the third quarter, SMIC gave quarterly guidance on revenue growth of 0-2% month-on-month, corresponding to the company's expected revenue of US$1.903-1.941 billion in the next quarter, slightly lower than the market's consensus expectations (US$1.955 billion). combined with the telecommunications method, it will expect "no growth in the price end" in the next quarter. Dolphin Jun believes that SMIC's growth in the third quarter mainly comes from the expansion of production capacity end. SMIC will continue to maintain the pace of production expansion in the next quarter, but due to the signs of a peak in the industry, the pace of production expansion of the company may be slightly lower than market expectations.
Core indicator 2: Gross profit margin
In the second quarter of 2022, SMIC's gross profit margin was 39.4%, down 1.3pct from month-on-month, better than the market consensus expectations (38.24%).
split the company's cost structure and analyze the source of SMIC's gross profit margin increase this quarter:
single-chip gross profit = single-chip wafer revenue - single-chip fixed cost - single-chip variable cost
1) single-chip wafer revenue : SMIC's single-chip wafer revenue this quarter (equivalent 8 inches) was US$1,009, a month-on-month increase of US$8/piece.
2) Single-piece fixed cost (depreciation and amortization) : This quarter's single-piece fixed cost (equivalent 8 inches) was US$220, an increase of US$6 per tablet month-on-month.
3) Single-chip variable cost (other manufacturing costs) : This season's single-chip variable cost (equivalent 8 inches) is US$391, an increase of US$11 per tablet month-on-month.
4) Single-piece gross profit : SMIC's single-piece gross profit (equivalent to 8 inches) this quarter was US$398, a decrease of US$10 per tablet month-on-month.
found through cost splitting that SMIC's gross profit margin/single-piece gross profit declined for for the first time in these seven quarters. The decline in gross profit was mainly due to the company's single-piece variable cost and single-piece fixed cost increase.
semiconductor upward cycle showed signs of peaking, and SMIC's product price growth stagnated. This quarter's increase in monolithic variable costs mainly comes from the manufacturing cost side, and the increase in fixed costs is mainly due to the increase in capital expenditure caused by the expansion of part of the production capacity this quarter.
Looking ahead to the third quarter, SMIC gave quarterly guidance on gross profit margin of 38-40%, which was better than the market consensus expectations (36.31%). When shows signs of a peak in semiconductors, it is not easy for the company to provide this guidance. In contrast, UMC's gross profit margin guidance for the next quarter is already lower than the gross profit margin in the second quarter. Under a series of measures such as the US Chip Act, domestic chip manufacturers will give priority to domestic chip manufacturing capacity such as SMIC to ensure the stability of their own supply chains. Benefiting from the filling of orders by domestic manufacturers, SMIC's capacity utilization rate and gross profit margin have certain risks.
Core indicator 3: Capacity utilization rate
Capacity utilization rate indicator not only reflects the quarterly operating conditions of SMIC, but also reflects the prosperity trend of the entire wafer manufacturing industry. The prosperity of the wafer manufacturing industry has driven SMIC and its many manufacturers to continue to see full production. Now, with the signs of downward trend in semiconductors, order adjustments from downstream manufacturers will directly affect the capacity utilization rate of chip manufacturers.
In the second quarter of 2022, SMIC's capacity utilization rate was 97.1%. Although SMIC's capacity utilization rate declined this quarter, Dolphin Jun believes that the decline in the company's capacity utilization rate is not due to the decrease in order demand, but because unstable factors such as the Shanghai epidemic in the second quarter have had a certain impact on production.
Why is it said that the epidemic has a greater impact rather than a reduction in orders? Because the company did not slow down the pace of production expansion this quarter, according to Dolphin Jun's calculation, SMIC conducted a medium single-digit capacity expansion in this quarter.
Looking ahead to the third quarter, the impact of the epidemic gradually faded in the third quarter, and , and the annual repairs that some of the company's factories did not carry out in the second half of the year may be put into operation in the second half of the year, which may have a little impact on capacity utilization rate. In the medium and long term, under a series of measures such as the US "Chip Act", domestic chip manufacturers will give priority to in domestic chip manufacturing capacity such as SMIC to ensure the stability of their own supply chains. Benefiting from the sufficient order demand of domestic manufacturers, SMIC will continue to expand its production capacity, and the company's capacity utilization rate also has a certain risk resistance .
2. Looking at the business level SMIC
After reading the three core indicators, Changqiao Dolphin Jun and everyone took a look at SMIC's quarterly business situation in all aspects:
2.1 In each downstream market: The drag on the mobile phone business is getting smaller and smaller
This quarter, the proportion of SMIC's smartphone business revenue continued to decline to 25.4%, and the impact of the smartphone business on the company's performance continued to decrease. Among all sectors, other business revenue is still the company's largest source of revenue, and its proportion continues to increase to 34.6%. Among other businesses, they mainly include application fields such as automobiles and industry, which reflect the strong demand driven by new energy vehicles and other applications.
Under the influence of unstable factors such as inflation and the epidemic, the global mobile phone market experienced a high single-digit decline this quarter. Affected by the global mobile phone market, the proportion of smartphone business in SMIC continues to decline to 1/4. With the decline in smartphone business and the growth of new energy, IoT and other businesses, SMIC's business has increased its risk resistance.
2.2 Each wafer size: 12-inch wafers continue to expand production
SMIC will no longer disclose the revenue share of each process node since the first quarter of 2022, and only disclosed the revenue share of 8-inch and 12-inch wafers. This will not be able to carefully see the revenue changes of each node.
The proportion of SMIC's 12-inch wafer revenue continued to increase, reaching 68.3%.Judging from the trend of increasing production capacity share in , SMIC's future focus will still be on 12-inch wafers. The revenue share of 12-inch products continues to increase, mainly due to the fact that the new production capacity expanded this quarter is basically 12-inch.
SMIC's 12-inch wafer revenue hit a new record high in this quarter, reaching US$1.3 billion, a month-on-month increase of 6%, which is the main source of the company's revenue growth.
2.3 Distribution in various regions: Domestic substitution continues to rise
SMIC's customer revenue share in mainland China and Hong Kong increased to 69.4% again this quarter, setting a record high of . After H manufacturers were restricted, the proportion of mainland China and Hong Kong once fell to about 55%, and now it has been close to 70% in a row. On the one hand, it shows that SMIC's current customer structure is relatively stable, mainly based on domestic customers; on the other hand, it shows that other domestic customers have now filled the gap between H manufacturers and are still improving.
Dolphin Jun believes that with the impact of events such as the US "Chip Act" and other events, in order to ensure the security of its own supply chain, more and more domestic manufacturers will give priority to domestic semiconductor production capacity such as SMIC. Customers in mainland China and Hong Kong will continue to increase their revenue share in SMIC.
3.3. Looking at operating data, SMIC
3.1 Operating expenses: basically flat
From the perspective of operating expenses, SMIC's operating expenses were US$211 million this quarter, basically flat on the previous month.
split the operating expenses for this quarter, research and development expenditures were US$187 million, general and administrative expenses were US$119 million, and consumer and marketing expenses were US$09 million. Both R&D expenses and general and administrative expenses have increased, among which the increase in general and administrative expenses mainly comes from the increase in the cost of trial operation of new factories and epidemic prevention and control.
Operating expenses were basically flat this quarter, and the increase in other operating income roughly offset the growth in operating expenses. The changes in the company's other operating income (net) projects this quarter were mainly due to the increase in government project funds of US$55 million this quarter.
3.2 Operating indicators: Inventory continues to rise
From the perspective of operating indicators, it mainly comes from the company's inventory and accounts receivable:
① SMIC's inventory this quarter was US$1.449 billion, a month-on-month increase of 10%;
② SMIC's accounts receivable this quarter was US$1.21 billion, a month-on-month increase of 2.4%.
③Combined with the relationship between inventory & accounts receivable and income in the balance sheet, 's inventory/revenue and accounts receivable/revenue were 76.1% and 63.6% in this quarter, respectively. From the perspective of operating indicators, SMIC's inventory has increased significantly since the second half of last year, and has increased by 21.36% since the beginning of the year.
In the second quarter, the company's inventory continued to rise, while the growth of shipment prices stagnated. Inventory and product prices, both aspects indicate signs of a peak in the industry.
3.3 EBITDA indicator: Profit and depreciation each account for half of
From the perspective of EBITDA, SMIC's profit before interest tax, depreciation and amortization reached US$1.22 billion in the second quarter, continuing to maintain a high level.
split, looking at the indicators, SMIC's profit before interest, tax, depreciation and amortization mainly comes from the release of operating profits and depreciation and amortization, and both items remain stable on a month-on-month basis this quarter. The profit margin for the quarter (before interest, tax, depreciation and amortization) reached 64.1%. Due to the characteristics of heavy assets in manufacturing, part of the company's profits have been eroded by depreciation and amortization.
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