Semiconductor Manufacturing International Corporation’s (SMIC) 1Q 09 performance deteriorated significantly, but was better than we had expected. Management has highlighted a strong order recovery and expects the utilization rate to double over 2Q 09. It has also indicated that it expects to achieve profitability by the end of the year if market conditions do not deteriorate drastically. Management’s guidance is higher than our previous expectations and we are likely to revise our estimates upwards as a result. Subsequently, we moderate the ADR rating from a SELL to a HOLD although the current price level does not support a HOLD rating, until we revalue the ADR target price and rating in our next update report. Based on our fundamental outlook we moderate the Hong Kong stock from a SELL to a HOLD, although current price levels do not support a HOLD rating. The Hong Kong dollar is pegged to the US dollar; therefore, we do not anticipate any currency impact. We will reassess the Hong Kong stock (50 Hong Kong shares = 1 ADR) target price and rating for SMIC in our next update report.

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