Does the "national team" give up SMIC? After the big fund sold 2.2 billion, both shares of SMIC International Port A fell!

A piece of news that "the National Big Fund has reduced its holdings of 100 million shares" made SMIC's shares open lower today.

By noon, the A-share SMIC had fallen to 1.1%, with a share price of 56.40 yuan, a turnover of more than 600 million yuan, and a total market capitalization of 445.7 billion yuan.

SMIC, a Hong Kong stock, also fell 2.3 per cent to HK $25.50, with a turnover of nearly HK $600m and a total market capitalization of HK $201 billion.

On this big move to reduce holdings, the market "chip stocks abandoned by the national team" rumors are rampant, is this really the case?

1 large reduction has nothing to do with performance

Specifically, last night, the Hong Kong Stock Exchange disclosed data showing that the National Integrated Circuit Industry Investment Fund (the first phase of the National large Fund) had reduced its holdings of SMIC 100 million shares in Hong Kong on April 9 and April 12, with an average reduction price of 26.15 Hong Kong dollars and 25.56 Hong Kong dollars respectively. Based on this calculation, the total cash out of the two reductions is about 2.58 billion Hong Kong dollars (about 2.177 billion yuan).

After the reduction, SMIC's stake in SMIC fell to 8.93 per cent from 10.21 per cent at the beginning of 2021.

Does the sudden large-scale sell-off of SMIC by big funds at this time really mean that the company has been "abandoned" because of its unfavorable management or a change in growth logic, as investors have argued?

This is not the case.

Let's take a look at SMIC's recent performance. At the end of last month, SMIC announced its 2020 results. In 2020, SMIC achieved revenue of 27.47 billion yuan, an increase of 24.8% over the same period last year; net profit of 4.33 billion yuan, an increase of 141.5% over the same period last year; and net cash from operating activities of US $1.66 billion last year, an increase of 62.9% over the same period last year.

In 2019, SMIC's non-net profit was a loss of 520 million yuan. The deduction of non-net profit in 2020 was 1.7 billion yuan, successfully turning losses into profits. Therefore, SMIC became the first Science and Technology Innovation Board to pick "U" enterprises.

In terms of business, the revenue of wafer foundry business was US $3.475 billion, accounting for 89% of the total revenue, an increase of 19.9% over the same period last year; the total revenue from photomask manufacturing, testing and other supporting technical services was US $433 million, accounting for 11% of the total revenue, an increase of 97.7% over the same period last year.

From a regional point of view, revenue from mainland China and Hong Kong accounted for 63.5%, up 34.1% from the same period last year; revenue from North American operations accounted for 23.2%, up 10.4% from the same period last year; and revenue from Europe and Asia accounted for 13.3%, up 16.7% from the same period last year.

Overall, the wafer foundry business is still SMIC's main source of income, with rapid growth in other business income; the mainland and Hong Kong account for the main part of business income, with a high growth rate.

Specifically, in the application area of wafer foundry business, smartphones still account for the largest proportion of revenue, accounting for 44.4%, up 21.7% from the same period last year; revenue from smart home applications accounted for 17.1%, up 22.3% from the same period last year; consumer electronics applications accounted for 18.2%, up 6.5% from the same period last year; other applications accounted for 20.3%, up 28.3% from the same period last year.

This is SMIC's first annual report since its listing. On the whole, SMIC handed over such a report card with increased revenue from all regions and applications after the epidemic continued to spread and was included in the US sanctions list in 2020. It shows that its profitability is still improving.

Therefore, the reduction of the national team has little to do with SMIC's operating capacity.

2 Real reason: periodic withdrawal of funds

In fact, not only SMIC, but also the national big fund has recently seen intensive reduction of its holdings.

On the evening of April 13, Changchuan Technology announced that the fund plans to reduce its stake in the company by no more than 6.2758 million shares within six months. The day after the announcement, Changchuan technology shares once fell nearly 10%, and then quickly pulled up in late trading, stopping the decline and turning higher.

In addition, Jingfang Science and Technology, Zhaoyi Innovation, Anji Technology and Big Dipper have also disclosed the announcement of large fund reduction one after another. Since the beginning of 2021, nine chip stocks have announced the progress of the plan to reduce the holdings of large funds.

Among the 9 chip stocks, SMIC, Changchuan Technology and other blue chip stocks are included.

According to the previous performance forecast issued by Changchuan Technology, its annual net profit is expected to be 78 million yuan to 89.9 million yuan in 2020, an increase of 553.52% and 653.23% over the same period last year.

Thus it can be seen that the big fund is not specifically aimed at SMIC, nor is it selling because of unfavorable management.

In September 2014, when the large fund was established, it formulated a plan of "five-year investment period and five-year payback period". Over the years, the large fund has supported a number of competitive domestic chip enterprises, and at present, it has reached the payback period set in advance.

Therefore, the large fund carries on the phased withdrawal fund to the entire chip plate, belongs to the normal operation.

Moreover, the support of the national team fund to domestic chip enterprises is carried out in accordance with the law of the market. Specifically, the first phase of the large fund mainly completes the industrial layout, while the second phase provides high-intensity support for weak areas such as etching machines, thin film equipment, testing equipment and cleaning equipment.

Therefore, while the first phase of the big fund enters the payback period, the second phase of the big fund is still actively laying out domestic chip enterprises, and may start actual investment at the end of March this year.

Data show that at present, the second phase of the big fund has invested in a total of 9 domestic chip semiconductor enterprises, of which Changchuan Intelligent Manufacturing has the highest shareholding proportion, with a shareholding ratio of 33.33%.

SMIC is also its key investment target, with three investments in May, July and December 2020 totaling 22.12 billion yuan, which is much higher than the total amount of cash in the first phase of the large fund, indicating that the national team's support to SMIC has not weakened.

3 conclusion

Back to SMIC, let's take a look at the company's previous financial results. In the fourth quarter of 2020, SMIC had revenue of $980 million and net profit of $257 million.

The target and plan for 2021 is to achieve medium to high single-digit income growth for the whole year, with a revenue target of about 13.9 billion yuan for the first half of the year and a gross profit margin of 10 to 20 per cent for the whole year.

In SMIC's 21Q1 guidelines, the company expects first-quarter revenue to grow 7% to 9% month-on-month, to 1.049 billion to 1.069 billion, and is expected to approach 20Q3's all-time high of $1.083 billion.

At present, the disadvantages SMIC faces include sanctions from the United States, which limits the company's procurement of relevant US products or technologies, making it difficult for advanced processes to mass produce; revenue from advanced processes drops sharply after the big customer Huawei Hayes is unable to place a large 14nm order; and the newly built production capacity of automotive chips is expected to pass the automotive specification-level production line certification by the end of 2021, making it impossible for the company to benefit from the strong demand for automotive chips.

But at the same time, on the one hand, SMIC is the largest wafer generation plant in mainland China, and the production scale is still expanding in recent years. It currently has 3 8-inch and 4 12-inch production bases in Shanghai, Beijing, Tianjin and Shenzhen. Among them, the mature process has three 8-inch wafer production bases and two 12-inch wafer production bases, with a total production capacity of nearly 500000 wafers per month.

On the other hand, under the background of vigorously developing the semiconductor industry in China, especially in the 14th five-year Plan, it is a top priority to promote domestic independent substitution in the field of "sticking neck" such as chips, as the largest representative of domestic chip science and technology. SMIC is expected to receive support from government project funds on the policy side.

Moreover, the semiconductor industry is in a high business cycle, downstream demand is strong. Therefore, in the long run, SMIC has a lot of room for development.