SMIC resumed trading with significant volatility! On the morning of September 9th, the semiconductor industry chain was generally weak. Among them, SMIC resumed trading with an 11% decline. Last night, after a 6-trading-day suspension, SMIC disclosed its plan to acquire its controlling subsidiary SMIC Beijing and announced the resumption of trading. Recently, institutional opinions on SMIC have been quite divergent. Dongwu Securities believes that as China's leading wafer foundry and a core pillar of domestic chip manufacturing, they are giving a "Buy" rating for the first time. However, Morgan Stanley and Goldman Sachs believe that SMIC's current situation is slightly below expectations.

**Resumption Trading Volatility** SMIC's performance upon resumption was below market expectations. The stock plunged 11% in the opening auction, though the decline later narrowed. As of publication, SMIC was still down nearly 7%, trading at 106.8 yuan per share.

Logically speaking, SMIC's acquisition should not be significantly negative news. On the evening of September 8th, SMIC announced that the company plans to issue shares to National Integrated Circuit Industry Investment Fund Co., Ltd., Beijing Integrated Circuit Manufacturing and Equipment Equity Investment Center (Limited Partnership), Beijing Yizhuang International Investment Development Co., Ltd., Zhongguancun Development Group Co., Ltd., and Beijing Industrial Development Investment Management Co., Ltd. to purchase their combined 49% stake in SMIC Beijing Integrated Circuit Manufacturing Co., Ltd. After completion of this transaction, the listed company's shareholding in the target company will increase from 51% to 100%.

Minsheng Securities believes that SMIC's acquisition of SMIC Beijing has the following main considerations: (1) Recovering profitable assets to enhance listed company profits. Since its establishment in 2013, SMIC Beijing has been operating for over 10 years, with production lines having completed or nearing the end of their depreciation periods, generating substantial profits. From the equity structure perspective, the combined 51% held by SMIC Holdings Limited, SMIC Capital Investment (Shanghai) Co., Ltd., and SMIC Integrated Circuit Manufacturing (Beijing) Co., Ltd. are all directly or indirectly controlled by SMIC. SMIC's completion of acquiring the 49% minority stake in SMIC Beijing, bringing its shareholding to 100%, may significantly enhance the listed company's net profit attributable to shareholders. (2) Meeting exit demands of shareholders represented by the National IC Fund Phase I. The National IC Fund Phase I is the single largest shareholder with a 32% stake. Established nearly 11 years ago (September 2014), the fund has passed its recovery period in 2024 and is currently in the "extension period" (subsequent exit and optimization phase), with strong exit demands. Similarly, other shareholders have similar needs.

For semiconductor wafer manufacturing project expansion, introducing external financing for subsidiary projects to address funding needs is quite common. Later completion of acquisitions by listed companies through share issuance plus cash creates a closed loop. The company is expected to achieve revenues of 69.93 billion yuan, 82.521 billion yuan, and 96.384 billion yuan in 2025, 2026, and 2027 respectively, with net profits attributable to shareholders of 5.331 billion yuan, 6.709 billion yuan, and 8.391 billion yuan respectively, corresponding to current stock price P/E ratios of 172, 137, and 109 times respectively. Considering the company's strong competitiveness in the wafer foundry sector and clear long-term growth logic, they maintain a "Recommend" rating.

**Divergent Views** Recently, market opinions on SMIC have been significantly divided. Investment bank Morgan Stanley's latest report points out that SMIC faces yield uncertainties in AI GPU chip production and believes its revenue may fall short of expectations. However, the report also notes that SMIC's yields are expected to gradually improve, with 910B chip yields currently around 30%, projected to improve to 70% by 2027.

Goldman Sachs recently published a similar report. However, Dongwu Securities believes that SMIC is mainland China's leading integrated circuit wafer foundry enterprise, with 8/12-inch wafer manufacturing capabilities and technological iteration advantages. The company's wafer processes range from 0.35 micrometers to 14nm and below. In 2024, the company's combined capacity across multiple 8-inch and 12-inch production bases in Shanghai, Beijing, Tianjin, and Shenzhen reached over 8 million wafers (8-inch equivalent).

In 2024, SMIC's global market share rose to 6%, ranking third globally and first domestically. Considering the company's position as China's largest wafer foundry, being first to achieve mass production of 28nm and below process nodes, and actively expanding 14nm and below advanced process capacity, the company leads in 7nm and below advanced processes with scarcity value. As AI's demand for computing power continues to grow and high-end chip demand continues to rise, the company has advantages in advanced process capacity scale and technology R&D, with industry leadership effects becoming increasingly prominent in the future. First coverage, giving a "Buy" rating.