SMIC FVE Slashed to HKD 15 as Firm Embarks on Heavy Capital Spending Despite Downturn

We cut our fair value estimate on no-moat Semiconductor Manufacturing International to HKD 15 from HKD 21, after assuming higher capital expenditure and lower gross margins throughout our 2023-27 forecasts. Our fair value estimate corresponds to 0.8 times price/book. The stock is fairly valued, in our view, but there is a risk of overshooting if Chinese equipment suppliers were successful in developing homemade alternatives; Japan and the Netherlands enforce export restrictions (as reported recently by Reuters) to China less fervently than expected; or the firm is able to price potential share offerings based on its A-share price, which is about triple that of Hong Kong.