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SMIC's (00981) outlook looks challenging
Nomura said SMIC's (00981) 1Q 2018 and 2018
guidance were a huge disappointment. If excluding the licensing revenue of US$150mn, 
SMIC's 2018 sales would only have grown low single digits y-y with GPM at a low-teen 
percentage level only, which makes SMIC's full-year outlook challenging.
  As the pricing competition on 28nm from TSMC will further weaken the already 
margin-dilutive 28nm node and low demand visibility in the China market, the research
house believes its fundamental numbers are insufficient to support the current valuation.
  Nomura cut its 2018 and 2019 EPS estimates by 58% and 65%, respectively, and maintained
its "reduce" rating and target price of HK$7, based on 0.9x 2018 BVPS (unchanged). It said
that 0.9x is at the mid- to lower-half of SMIC's 0.8-1.3x P/B range after 2013. SMIC is
trading at 1.3x 2018 BVPS of US$1, with ROE less than 2% in 2018-2019.

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