HUA HONG SEMI(1347.HK)：IMPROVING MIX AND SCALE YET VALUATION STRETCHES

Core Viewpoint - Hua Hong's 4Q25 results showed strong revenue growth driven by high utilization and robust shipments, although net profit declined due to increased labor costs [1] Financial Performance - 4Q25 revenue rose 22.4% YoY and 3.9% QoQ to US$660 million, marking a quarterly record [1] - FY25 revenue increased 20% YoY to US$2.4 billion, aligning with estimates and consensus [1] - GPM for FY25 was 11.8%, consistent with estimates, but impacted by higher depreciation [1] Product and Capacity Development - The product mix improved in FY25, with 12-inch shipments accounting for approximately 60% of revenue, up from 50% in FY24 [2] - High utilization rates were maintained at ~106% for FY25 and ~104% for 4Q25, with a slight QoQ decline due to the ramp-up of 12-inch capacity [2] - Revenue from Analog & Power Management grew 41% YoY, driven by AI demand, while Embedded NVM and Standalone NVM also saw significant growth [2] Strategic Acquisitions and Expansions - The acquisition of Shanghai Huali Microelectronics (HLMC) for RMB8.3 billion is expected to add ~40,000 12-inch wafers per month of capacity [3] - The expansion of Fab 9B is set to commence this year, mirroring the existing Fab 9A's capacity of ~83,000 12-inch wafers at full ramp [3] Valuation and Market Position - Current share price appears rich despite structural improvements, with a target price adjusted to HK$80 based on 2.9x 2026E P/B [3] - Continued depreciation pressure and elevated capex intensity are anticipated from the ramp-up of Fab 9A and the build-out of Fab 9B [3]