Daily Brief China: Semiconductor Manufacturing International Corp (SMIC), Asymchem Laboratories Tianjin, Tencent and more

In today’s briefing:

SMIC (SEHK: 00981; SSE Star Market: 688981): Back to Reality
China Healthcare Weekly (Nov.10) – 9th National VBP, Cyclicity of CXO Sector, Asymchem, Hengrui
Index Rebalance & ETF Flow Recap: SSE50, Chinext/50, Renesas, Tencent, Amman Mineral

SMIC (SEHK: 00981; SSE Star Market: 688981): Back to Reality

Reports emphasizing that SMIC fell short of 3Q expectations don’t make much sense. The real test starts this quarter with 7nm smart phone processors for Huawei in mass production.
Profits are under pressure from low capacity utilization, rising depreciation and continued high investment. Cash flow is adequate. The balance sheet is sound.
The share price dropped 6.8% on Friday after rising 44% from late August to early November. 4Q guidance points to near-zero operating and net profit. Recovery will take time.

Results of 9th national VBP was released. The average price reduction was 58% and the maximum price reduction was over 90%. Hengrui (600276 CH)‘s challenge in VBP has just begun.
The whole CXO sector is more like a cyclical industry than a high-barrier industry. There’re still some pressures/risks have not been fully released. Its future may be darker than before.
Asymchem’s stock price performance follows the entire CXO sector. Whether Asymchem can obtain large Tirzepatide orders and provide investors with high certainty of outlook is the key for valuation reversal.

Wednesday will be a busy day as positions are put on and unwound following announcement of the changes to the MSC indices.
Friday will end the review cutoff for the ASX indices and Hang Seng Indexes will announce the December changes for the HSI, HSCEI, HSTECH and HSCI post market close.
Another week of large outflows for China focused ETFs with redemptions across all the major indices.

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