HUA HONG SEMI(1347.HK)：2Q MARGIN BEAT D/G TO HOLD DUE TO SUBSTANTIAL RECENT SHARE PRICE GAINS

Core Viewpoint - Hua Hong Semiconductor reported strong 2Q25 earnings with revenue growth driven by increased wafer shipments, aligning with guidance and market expectations [1][2] Financial Performance - Revenue for 2Q25 reached RMB566 million, reflecting an 18.3% year-over-year increase and a 4.6% quarter-over-quarter increase, supported by an 18.0% increase in wafer shipments [1] - Gross Profit Margin (GPM) improved by 1.6 percentage points sequentially to 10.9%, surpassing both management guidance (7%-9%) and consensus (8.3%) [2] - Net Profit Margin (NPM) increased to 1.6% from 0.7% in 1Q25, attributed to better GPM and increased other gains [2] Operational Metrics - Utilization rate reached a record high of 108.3%, up 5.6 percentage points from 1Q25 and 10.4 percentage points from 2Q24, driven by demand recovery and operational improvements [2] - Blended Average Selling Price (ASP) was US$434, showing a slight increase of 0.2% year-over-year but a decrease of 1.3% quarter-over-quarter [2] Future Guidance - Management projects 3Q25 revenue to be between US$620 million and US$640 million, indicating a year-over-year growth of 19.7% and a quarter-over-quarter growth of 11.3% [2] - GPM is expected to remain stable in the range of 10%-12% for 3Q and 4Q, similar to 2Q levels, due to depreciation headwinds [2][4] Capacity and Expansion - The company forecasts a 20% year-over-year revenue growth in 2025, driven by capacity expansion, high utilization, and ASP stabilization [3] - Wafer shipments are expected to grow by 16.2% in 2025, with 50% of Fab 9's capacity already operational and full expansion anticipated by mid-2026 [3] Valuation and Market Position - The stock has been downgraded to HOLD with a new target price of HK$48, based on a 1.7x 2025E Price-to-Book ratio, reflecting fair valuations after a 50% increase in stock price over the past two months [5] - Potential upside catalysts include stronger-than-expected demand recovery and greater-than-anticipated ASP increases, while downside risks involve weaker demand and geopolitical tensions [5]