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Semiconductor Manufacturing International Corporation 11 July 2008

Update Report – 1Q 08 Results

Management’s expectation of profitability from 4Q 08 onwards seems optimistic

ADR HOLD Fundamental research indicates a 2% upside in the ADR over the next 6-12 months. We have
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Fundamental Stock
http://www.iirgroup.com/researchoracle/viewreport/show/20293
obtained using DCF and comparative valuation methodologies. We have taken a 6-12 month
investment horizon for this stock, as the semiconductor industry in which the company operates is
Ticker: SMI
highly cyclical and therefore trends can be captured more accurately with a shorter investment horizon
Target price: US$2.75
We reiterate the ADR a HOLD on fundamental grounds with a 6-12 month target price of US$2.75.
Current price: US$2.70

Hong Kong HOLD The Hong Kong stock is expected to appreciate approximately 1% over the next 6-12 months as the
2% fundamental upside is offset by approximately 1 percentage point downside attributable to the
Stock anticipated increase in the Hong Kong stock discount1 over the same period. The currency impact on
the Hong Kong stock is neutral since the Hong Kong dollar is pegged to the US dollar.
Ticker: 0981.HK
Target price: HK$0.4224 We reiterate the Hong Kong stock (50 Hong Kong shares = 1 ADR) a HOLD with a 6-12 month target
Current price: HK$0.4200 price of HK$0.42.

Analyst: Shilpen Shah
Editor: Heloise Capon
Global Research Director:
Satish Betadpur, CFA
Investment horizon - short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this
report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the
short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for
readers with a shorter trading horizon. These are available online only at www.researchoracle.com

Next news due:

2Q 08 results, late July 2008
Report summary
Semiconductor Manufacturing International Corporation’s (SMIC) results were significantly below
expectations in 1Q 08. Management’s decision to curtail DRAM production hit shipments, while
inventory writedown impacted margins in the quarter. The change in business strategy has led to a
significant drop in available capacity due to the ongoing conversion of DRAM into Logic capacity at its
Beijing fab and potential impairment of the company’s assets subsequent to the halt of commodity-
DRAM manufacturing at the fab. The impact on the company’s sales and profitability in the short term
is evident. However, Management expects to report profits across the company from 4Q 08 onwards,
with profitability improving going forward. In contrast to Management expectations, we do not expect
profit at the net level in either FY 2008 or FY 2009. We have revised our estimates across the board
for the next two years. Although the SMIC ADR price has declined 38.2% since our 4Q 07 and FY 2007
update report, we do not believe there is significant fundamental upside in the coming 6-12 months.

Currency impact for US investors

The company reports in US dollars, which is its major trading currency. Earnings forecasts are
therefore also expressed in US dollars. Although the company has costs as well as revenues in other
currencies, we assume the net risk is minimized through effective hedging strategies. As a result the
impact of currency movements on the price of the ADR is assumed to be neutral. Where specific
currency risks are identified these will be highlighted in the report.

Currency impact on the Hong Kong stock

The Hong Kong dollar is currently pegged to the US dollar in the range of HK$7.75 and HK$7.85. We
are assuming a constant exchange rate to value this stock over our investment horizon. The ADR has
been calculated using the 09 July 2008 closing USD/HKD exchange rate of HK$7.80.

Page 1 Refer to page 5 for footnotes