SMIC International: hills, bright future; Over the mountains, the company's three quarterly revenue recovery, stable expansion of production capacity as the company gradually completed two quarters of the relocation, accompanied by the company's 28nm high growth and fingerprint recognition recovery. The company's three-quarter revenue recovery rose to $770 million, up 2.5%. Since 2016, the industry in the same period of high demand for the state, so that the 2016 three quarters of the company's income in the high base level, it also led to a slight decline in corporate income 0.7%. Among them, the company 28nm product line revenue growth continued to rise, the proportion also reached a level of 8.8%. And the company's capacity expansion chain in a stable state, the average monthly 8-inch equivalent capacity of 448,000 tablets, the chain growth of 2.2%, year-on-year growth of 14.7%, capacity utilization rate of 83.9%. With the company's 28nm production line high growth rate, and the company 28nm HKC Technology Manufacturing, the company is expected to four quarter revenue will still be in a small increase in the state, into the recovery period. 28NM product rapid growth, income structure changes while depressing profitability however, because the company 28nm product production time is relatively short, so it is still in the ramp stage, so the high growth rate of the line for the company in the three quarter and the expected four quarters of profitability pressure. The company's three quarterly gross margin is at 23%, and the company's four-quarter gross margin is expected to continue to fall to around 20%. At the same time, the company's net profit fell to about $30.6 million as a result of the dual impact of TSMC's price pressures and 28nm expansion. From now on, the company is pushing 28nm HKC Plus technology research and development, but also set up a joint venture to promote 14nm research and development, so it is expected that the company in the four quarter and the next few years will maintain a higher level of research and development spending. At the same time, with the company's new capacity to continue to put, the company depreciation will be in a state of Ascension. So it is expected that the company will have a small pressure on profitability in the four quarter and in the coming year. The target price has been raised to HK $11.80 and the downgrade is from an industrial perspective and we are positive about our long-term development. At the same time, we also believe that with the company's technology, such as the rapid development of 14NM, the company is expected to become a parallel with TSMC foundry. But the company is still in the investment period, so profits still have a lot of pressure, still need a certain amount of time to reap the fruits of victory. Therefore, we keep looking forward to the future technology development of the company, but keep the rationality of the current profit. So we adjusted the 2017/2018 profit forecast to $1.54/US $206 million, maintaining the previous valuation hub unchanged, giving the company a target price of HK $11.80 according to 1.5 times petabytes, and giving it a rating relative to the current share price of 0.85%.
