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00981 SMIC
RTNominal up18.700 +0.520 (+2.860%)
Research Report

17/02/2020 17:43

SMIC's (00981) high capex to narrow leverage buffer - S&P

[ET Net News Agency, 17 February 2020] S&P Global Ratings today said Semiconductor
Manufacturing International Corp.'s (BBB-/Stable/--)(SMIC)(00981) higher capital
expenditure (capex) than the credit rating agency expected will likely increase the
company's debt leverage to 1.6x-1.9x in 2020, compared with our forecast of 1.3x-1.6x.
This will narrow SMIC's leverage cushion versus the current rating threshold of 2.0x.
SMIC's capital expenditure guidance for 2020 of US$3.2 billion is significantly above our
prior assumption of US$2.2 billion-US$2.6 billion, and above the US$2.0 billion spent in
2019. The leverage of 1.6x-1.9x includes our assumption that the Shanghai-based SMIC will
receive US$600 million in capital injection from the state-backed China Integrated Circuit
Industry Investment Fund (ICF).
The actual financial injection could be higher, based on SMIC's perceived needs to
support technology development, given the U.S.-China trade tension, and that ICF raised
RMB204 billion in October 2019.
SMIC is operating at full capacity and needs additional facilities to meet demand. The
company's capacity utilization was at 99% during the fourth quarter of 2019, marking a
significant rise from 90% the year before. Most of the year-on-year growth came from
mature process nodes (greater than 28 nanometers [nm]), sustained by demand from mainland
China. The domestic market accounted for 65% of SMIC's revenue in the fourth quarter, up
from 58% the year before. S&P expects this contribution to increase.
The majority of SMIC's investments in 2020 will be geared toward capacity expansion for
14nm process nodes. 14nm only accounts for 1% of the revenue in the fourth quarter of
2019, and the company is in its early stage of production.
Over time, S&P expects demand will shift toward 14nm and it will become a much more
significant revenue contributor.
The agency doesn't expect SMIC to be significantly affected by the novel coronavirus
outbreak because customer demand continues to surpass the company's capacity. Furthermore,
SMIC's fabrication facilities (fabs) were in production through the Chinese New Year
holiday; they are not subjected to restart issues that other technology hardware
manufacturers face. This is typical for semiconductor fabs. Therefore, SMIC is forecasting
its first-quarter 2020 revenue to grow up to 2% quarter on quarter and 25%-28% year on
year. (KL)

Remark: Real time quote last updated: 02/06/2020 17:58
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