The largest merger and acquisition deal in the history of the STAR Market has arrived, as a major wafer foundry giant's restructuring plan has received approval.

According to the official website of the Shanghai Stock Exchange, on May 11, the 5th meeting of the Mergers and Acquisitions Restructuring Review Committee in 2026 was held, during which the proposal for Semiconductor Manufacturing International Corporation (SMIC) (688981.SH) to issue shares for the purchase of assets and related party transactions was reviewed and approved, with no further matters to be addressed.

This transaction involves SMIC's plan to acquire a 49% equity stake in SMIC North for 40.6 billion yuan. Upon completion, SMIC will achieve full ownership of SMIC North. This is also the largest share issuance and asset acquisition deal in terms of transaction scale since the establishment of the STAR Market. This means that this 12-inch wafer fab, with a monthly capacity of 75,000 wafers, will be fully integrated into SMIC's semiconductor portfolio, helping the company further consolidate its leading position.

It is worth noting that on May 11, the A-share semiconductor sector experienced a breakthrough rally, with the Shanghai Composite Index surpassing the 4,200-point mark, the STAR 50 Index surging nearly 5%, and the Wind Semiconductor Index rising close to 6%. Among individual stocks, companies such as China Shipbuilding Industry Group Special Gas Co., Ltd., Puramem, Xingfu Electronics, and Changchuan Technology (Rights Protection) hit the 20% daily limit, while Changdian Technology, Jiguang Technology, and Jinhaitong rose by the 10% daily limit. Other firms like Montage Technology, Jucheng, and Tianyue Advanced also saw gains exceeding 15%. SMIC's A-shares rose 1.84%, with its market value approaching one trillion yuan, while its Hong Kong-listed shares increased by 4.43%.

Thirteen Years of "Separation" and "Reunion"

According to the latest announcement, SMIC plans to issue shares to five shareholders, including the National Integrated Circuit Industry Investment Fund Co., Ltd., to acquire their combined 49% equity stake in SMIC North, with a transaction value of approximately 40.6 billion yuan. After the transaction, SMIC's stake in SMIC North will increase from 51% to 100%, achieving full ownership.

Headquartered in Beijing, SMIC North is a leading integrated circuit wafer foundry in China, primarily providing 12-inch integrated circuit wafer foundry services and supporting solutions across various process platforms.

Since its establishment in 2013, SMIC North has been a controlled subsidiary of SMIC. Thirteen years later, SMIC is finally bringing SMIC North fully under its wing. This move not only reflects SMIC's history of capacity expansion but also mirrors the development of China's semiconductor industry.

Back then, to undertake the construction of SMIC's second-phase project and expand 12-inch integrated circuit manufacturing capacity, SMIC, together with SMIC Beijing, Zhongguancun Development Group Co., Ltd., and Beijing Industrial Development Investment Management Co., Ltd., jointly invested in establishing SMIC North, with a total investment of $3.59 billion and a registered capital of $1.2 billion.

At the time of SMIC North's establishment, the global wafer foundry industry was in a cycle of accelerated capacity expansion, and China's integrated circuit industry was in a critical phase of catching up and rapidly expanding production capacity. The industry faced challenges such as large-scale factory investment requirements, tight construction timelines, and urgent needs for production ramp-up, all of which demanded substantial capital and efficient fund utilization.

In this context, SMIC, aligning with the pace of domestic industry development and its own financial planning, adopted a joint venture model for SMIC North's establishment, choosing an approach that better suited the development needs of China's integrated circuit industry. This joint venture model is a classic approach to improving the efficiency of capital investment in wafer fabs and quickly addressing domestic production capacity gaps.

Over the past decade, SMIC North has grown into a leading domestic wafer foundry and achieved its design target of 75,000 wafers per month in capacity in 2022.

Why is SMIC initiating the acquisition of SMIC North at this point?

The announcement indicates that SMIC believes SMIC North has entered a stable operational phase, with existing production equipment depreciation trending downward and expected to exit the depreciation cycle in the coming years, leading to continuous optimization of its cost structure. At the same time, SMIC North possesses a rich and mature portfolio of process technology platforms, providing room for sustained improvement in future profitability.

This means that the thirteen-year "partnership" between SMIC and SMIC North is finally reaching the endpoint of complete integration.

Incorporating a "Cash Cow"

What role does SMIC North play in SMIC's asset portfolio? In the announcement, SMIC describes it as a "high-quality core asset," which is closely tied to its stable profitability in the mature process segment.

Public information shows that SMIC North's 12-inch integrated circuit production line project reached its intended operational state in 2016 and achieved its design target of 75,000 wafers per month in capacity in 2022. From January to August 2025, its capacity utilization rate reached 100.76%, with strong order coverage.

From a financial perspective, SMIC North has become a "cash cow." In 2023, 2024, and the first eight months of 2025, SMIC North reported revenues of 11.576 billion yuan, 12.979 billion yuan, and 9.012 billion yuan, respectively, with net profits of 585 million yuan, 1.682 billion yuan, and 1.544 billion yuan. It is reported that SMIC North's profits mainly come from 12-inch integrated circuit products, with profitability showing an upward trend as capacity utilization increases. As the company further optimizes its product structure, its profitability is expected to improve further.

This also reflects the core objective of this transaction: to enhance the overall profitability of the listed company.

Pro forma financial data indicates that after the completion of this transaction, SMIC's net profit attributable to parent company shareholders for 2024 will increase from 3.699 billion yuan to 4.523 billion yuan, with basic earnings per share rising from 0.46 yuan to 0.53 yuan. For the first eight months of 2025, net profit attributable to parent company shareholders will increase from 3.899 billion yuan to 4.656 billion yuan, with basic earnings per share rising from 0.49 yuan to 0.55 yuan.

From a medium- to long-term valuation perspective, SMIC's equity acquisition in this case has a clear logic for improving profitability, attracting several securities firms to raise their target prices.

Bank of Communications International released a report stating that, based on the pro forma reports issued by SMIC and its accountants, the acquisition of SMIC North will increase SMIC's net profit by over $120 million in 2026 and enhance earnings per share and net asset value per share. Accordingly, the bank maintains a "Buy" rating on SMIC, raising its target price to HK$93 and simultaneously increasing its diluted earnings per share forecast for 2026 and 2027 to $0.16 and $0.18, respectively.

Against the backdrop of deepening domestic substitution in the semiconductor industry, SMIC North, as an important 12-inch foundry base in Beijing, is expected to see its capacity allocation better aligned with the group's overall strategy through this full ownership. Recent research from CITIC Securities points out that domestic wafer fabs are likely to accelerate capacity expansion in 2026, with segments such as memory chips, equipment, and materials continuing to benefit.