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]

13 February 2026 | 12:52AM HKT Equity Research Hua Hong (1347.HK): 1Q26 revenues flat with GM potentially higher QoQ; 4Q25 Rev/ GM in-line; Buy Hua Hong expects 1Q26 revenues to grow at -1%~+0% QoQ and GM at 13%~15% (vs. 13% in 4Q25), showing continuous improvement in GM with strong UT rate, ASP increase and cost control. The 1Q26 revenue guidance is largely in-line, or 8%/ 6% lower than GSe/ Bloomberg consensus at the mid point. The GM guidance is in-line with our estimate (14.0%) while 0.8ppts higher than ...

Summary of Hua Hong's Conference Call Company Overview - **Company**: Hua Hong (1347.HK) - **Industry**: Semiconductor Foundry Key Points and Arguments 1. **Growth Opportunities**: - Hua Hong is expected to benefit from structural growth opportunities due to clients' increasing preference for local foundries and the rising market share of Chinese fabless companies in the global supply chain [1][4] - The semiconductor industry in China is experiencing improving supply and demand dynamics, which supports Hua Hong's growth [1][5] 2. **Capacity Expansion**: - Hua Hong is ramping up capacity with the next fab targeting 28/22nm process nodes, which is anticipated to lead to long-term increases in average selling prices (ASP) [1][9] - Current capacity has reached 129k wafers per month, with plans for further expansion [9] 3. **UT Rate and ASP Improvement**: - The utilization (UT) rates for Hua Hong's 12" and 8" fabs are reported to be at elevated levels, indicating strong operational performance [4] - The improvement in UT rates is expected to support pricing enhancements, contributing to stronger earnings per share (EPS) growth potential [1][2] 4. **Earnings Revisions**: - Earnings forecasts for 2027-2029 have been revised upward by 1% due to a higher revenue outlook, reflecting anticipated demand for specialty technology chips [10] - Revenue projections for 2025E, 2026E, 2027E, 2028E, and 2029E are $2,397 million, $3,214 million, $4,037 million, $4,673 million, and $5,393 million respectively [11] 5. **Valuation and Price Target**: - The 12-month target price has been raised to HK$134, based on a target P/E of 78.1x for 2028E, reflecting a positive outlook driven by sustainable scale expansion and technology migration [1][25] - The target price represents a 26.7% upside from the current price of HK$105.80 [27] 6. **Risks**: - Key risks include weaker-than-expected end-market demand, slower ramp-up of the 12" fab, and uncertainties surrounding US-China trade relations [26] Additional Important Information - **Market Position**: Hua Hong is positioned as a leading foundry in China, focusing on specialty technologies across various end-markets including consumer electronics, communication, computing, and automotive [23] - **Financial Metrics**: - Gross margin is projected to improve from 11.8% in 2026E to 22.2% in 2029E [11] - Operating income is expected to turn positive by 2026E, reaching $173 million [11] This summary encapsulates the critical insights from the conference call regarding Hua Hong's growth prospects, operational performance, financial outlook, and associated risks.

Summary of Key Points from the Conference Call Industry Overview - The focus is on Asia's logic semiconductor firms, with a robust growth forecast driven by cloud AI applications. Non-memory semiconductor revenue is expected to grow by **25% YoY in 2026**, following a **16% growth in 2025** [2][9]. Core Company Insights TSMC (Taiwan Semiconductor Manufacturing Company) 1. **Revenue Growth**: TSMC is projected to achieve **25% revenue growth** in USD terms for 2026, supported by strong demand for cloud AI products, particularly GPUs and ASICs [3][10]. 2. **Capex Increase**: Capital expenditures are expected to rise to **US$50 billion** in 2026, up from **US$42 billion** in 2025, to support leading-edge technology migrations [12][18]. 3. **Capacity Expansion**: TSMC's N3 capacity is forecasted to reach **170kwpm** by the end of 2026, up from **120kwpm** at the end of 2025, with tight utilization expected throughout the year [15][16]. 4. **Cloud AI Demand**: Cloud AI is anticipated to account for **35-40%** of N3 demand in 2026, with significant contributions from major clients like Nvidia and Google [16][18]. MediaTek 1. **TPU Production**: MediaTek's TPU efforts are expected to ramp up significantly, with sales projected to reach **US$0.8 billion** in 2026 and **US$4 billion** in 2027, driven by strong demand and potential upside in volume expectations [3][23]. 2. **Market Position**: The company is positioned to benefit from the growing market for cloud AI, with expectations of shipping around **1 million units** of TPU in 2027, with potential for much higher volumes [23][25]. Advanced Packaging and Testing 1. **CoWoS Capacity**: The industry is expected to see an **85% YoY increase** in CoWoS capacity in 2026, with TSMC's CoWoS capacity projected to reach **110kwpm** by Q3 2026 [4][28]. 2. **Technological Advancements**: Advanced packaging technologies are gaining traction, with Intel's EMIB also expected to ramp up production in H226 [4][28]. Stock Recommendations - Top picks include **TSMC**, **MediaTek**, and **ASE**, with buy ratings on several other companies such as **Aspeed**, **Hon Precision**, and **GlobalWafers**. Neutral ratings are given to **Vanguard**, **Realtek**, and **SMIC** [6]. Additional Insights - **Market Dynamics**: The semiconductor market is experiencing a shift, with mature foundries and OSAT expected to outgrow fabless companies in 2026 due to improved competition and pricing [5]. - **Silicon Wafer Supply**: Supply and demand for silicon wafers are expected to stabilize, with a more favorable pricing outlook despite some persistent oversupply [5]. - **Potential Risks**: Rising memory BOM costs could impact end demand for smartphones and PCs in 2026, posing a risk to overall market growth [5]. This summary encapsulates the key insights and projections from the conference call, highlighting the growth potential and strategic directions of major players in the semiconductor industry.

Summary of Hua Hong Conference Call Company Overview - **Company**: Hua Hong (1347.HK) - **Industry**: Semiconductor Manufacturing Key Points Demand and Capacity Expansion - Management anticipates solid demand across technology platforms, supporting high utilization rates (UT rate) [1] - Fab 9B is projected to ramp up to 83k wafers by 2027, with additional capacity for 28/22nm products planned for 2027-29 [1][6] Product Mix and Pricing Strategy - The company plans to optimize its product mix and increase average selling prices (ASP) by 5-10% due to strong end-market demand [6][7] - Continuous cost management efforts are expected to enhance profitability [6] Local Supplier Utilization - Hua Hong aims to increase the use of local suppliers for semiconductor production equipment (SPE) and materials, currently at a local supply ratio of 20-30% [6] Financial Outlook - The company is positive about profitability due to a better cost structure and disciplined depreciation [6] - Management expects a small increase in depreciation for Fab 7 in 2026, stabilizing for 2-3 years before decreasing [6] Valuation and Price Target - The 12-month target price for Hua Hong is set at HK$117.0, based on a P/E ratio of 68.8x for 2028E, reflecting a positive outlook driven by sustainable scale expansions and technology migrations [3][7] - Current market cap is HK$146.0 billion, with an expected revenue increase from HK$2,004 million in 2024 to HK$4,004 million by 2027 [8] Risks - Key downside risks include weaker-than-expected end-market demand, slower ramp-up of 12" fabs, and uncertainties surrounding US-China trade relations [7] Additional Insights - The company maintains a Buy rating due to high loading, continuous capacity expansions, and migration towards advanced technology nodes [1] - The report emphasizes the importance of localizing suppliers to improve profit margins and production efficiency [6] This summary encapsulates the essential insights from the conference call regarding Hua Hong's operational strategies, financial outlook, and market positioning within the semiconductor industry.

Summary of China Semiconductors Conference Call Industry Overview - **Industry**: China Semiconductors - **Key Themes**: AI, memory, localization, and domestic substitution are driving growth in the semiconductor sector for 2026 [3][12][14] 2025 Review - **Domestic Substitution**: Continued to enhance in 2025 amid trade tensions, with a focus on domestic AI and memory super cycles [2][14] - **Performance**: Positive reactions from Chinese semiconductor stocks during trade tensions; however, some misjudgments on specific stocks like Cambricon and Silergy [2][19] - **Key Players**: NAURA, AMEC, Piotech, SMIC, Hua Hong, Hygon, and Horizon Robotics were highlighted as outperformers [10][17] 2026 Outlook - **Growth Projections**: Anticipated strong beta for China Semiconductors driven by AI, memory, and localization themes [3][4] - **Semicap Sector**: Expected EPS growth of ~30% with a potential P/E re-rate contributing another ~20% upside; NAURA and AMEC are top picks [4][10] - **AI Chips**: Cambricon's sales projected to double in 2026, with significant growth potential into 2027/28; Hygon expected to grow slower due to its existing CPU revenue base [5][49] - **Foundry Sector**: SMIC and Hua Hong expected to benefit from increased demand and capacity expansion [6][10] - **Smart Driving Chips**: Weaker new vehicle sales anticipated, but smart driving penetration expected to accelerate; Horizon Robotics positioned well against competitors [7][10] - **Analog Sector**: Recovery expected to be moderate due to weak macro conditions and high inventory levels; Silergy's performance remains uncertain [8][10] Investment Implications - **Ratings**: NAURA, AMEC, Piotech, SMIC, Hua Hong, Cambricon, Hygon, and Horizon Robotics rated as Outperform; Silergy as Market-Perform; Black Sesame as Underperform [10][12] Key Risks and Considerations - **Market Sentiment**: Long-term investors should be cautious about timing profit-taking if the market overheats [3][10] - **Supply Chain Dynamics**: Local supply chain developments are crucial, with expectations of significant growth in local AI chip production capacity by 2028 [25][26] - **NVIDIA H200 Sales**: Potential government regulations on NVIDIA H200 sales to China could impact local players' revenue growth [27][10] Additional Insights - **AI Narrative**: The "DeepSeek moment" in early 2025 marked a significant shift in market perception regarding China's AI capabilities, expanding the total addressable market for semiconductors [15][24] - **Memory Sector**: China's NAND production is expected to accelerate, with YMTC's technology returning to Global Tier 1 levels, creating competitive advantages [16][65] - **Localization Trends**: Continued emphasis on localization in semiconductor production, particularly in DRAM and matured logic sectors [66][10] This summary encapsulates the key points discussed in the conference call regarding the China semiconductor industry, highlighting growth opportunities, investment implications, and potential risks for 2026.

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the Greater China Technology sector, focusing on trends and projections for 2026, particularly in AI and related technologies, as well as the smartphone supply chain influenced by Apple’s form factor changes [2][3]. Key Trends Identified for 2026 1. **AI Servers**: Anticipated growth in rack-level AI servers, with shipments expected to rise to 50,000 racks in 2026 from 19,000 in 2025. Major suppliers include Hon Hai and FII, with a projected ASIC penetration rate of 40% in 2026 and 45% in 2027 [1][13]. 2. **Optical Transceivers**: Growth in optical module shipments, with a forecasted increase of 253% year-over-year in 2026, driven by the demand for high-speed connections in AI data centers [1][13]. 3. **Cooling Solutions**: A shift towards liquid cooling in AI servers is expected, reflecting the rising complexity and computing power requirements [1][13]. 4. **Original Design Manufacturers (ODMs)**: Companies with strong commitments and capacity plans in the US, such as Hon Hai, Wistron, and Wiwynn, are expected to outperform in the market [1][13]. 5. **Smartphones**: Apple suppliers are projected to excel in 2026, while Android smartphone demand remains muted. The introduction of foldable iPhones may drive demand [1][2]. 6. **Printed Circuit Boards (PCBs)**: Demand is expected to remain solid despite ongoing debates about long-term supply and demand dynamics [1]. 7. **Semiconductors**: Local leaders in advanced nodes, such as SMIC and Hua Hong, are expected to drive industry growth, supported by rising local GPU suppliers [1]. 8. **L4 Chips & Robotaxi**: Continued upgrades and expansions in this area are anticipated, contributing to growth for chipset, software, and sensor suppliers [1]. 9. **LEO Satellites**: Accelerating satellite launches and reduced launch costs are expected to drive the development of constellation networking infrastructure [1]. Financial Projections - AI and AI-related technologies are expected to deliver mid-double-digit year-over-year revenue growth in 2026 [2]. - The total addressable market (TAM) for global smartphones is raised by 1% to 2% for 2026 and 2027 due to higher average selling prices (ASP) [3]. - The TAM for global PCs is projected to increase by 3% year-over-year for 2025 and 2026, with gaming PCs expected to reach a penetration rate of 11% to 13% by 2025 and 2028 [3]. Investment Recommendations - The report highlights several companies as "Buy" recommendations based on their expected performance in the evolving technology landscape, particularly in AI servers and components [14]. - Specific companies mentioned include Hon Hai, FII, Wistron, and various optical component manufacturers like Innolight and Eoptolink [14]. Additional Insights - The complexity of AI servers is expected to lead to a reliance on leading suppliers with strong designs and manufacturing capabilities, creating a stable competitive landscape [14]. - The report emphasizes the importance of R&D, vertical integration, and comprehensive chipset platform exposure for companies to succeed in the market [14]. This summary encapsulates the critical insights and projections from the conference call, providing a comprehensive overview of the anticipated trends and investment opportunities within the Greater China Technology sector for 2026.

Summary of Conference Call Notes Company and Industry Overview - **Company**: Moore Thread (688795.SS) - **Industry**: Semiconductor, specifically focusing on GPU (Graphics Processing Unit) solutions for AI and gaming applications Key Points and Arguments 1. **New GPU Architecture Launch**: - Moore Thread introduced the HuaGang architecture, which features a 50% increase in computing density, a 64x improvement in AI performance, and a 10x enhancement in energy efficiency. This architecture supports large-scale computing clusters with over 100,000 GPU cards [4][8] - Upcoming products based on this architecture include the HuaShan chipset for AI training and the LuShan chipset for gaming applications [4] 2. **Strong Order Momentum**: - Management expressed optimism regarding strong order growth driven by new product rollouts and increased shipments. Orders from cloud service providers (CSP) and enterprise clients are expected to support business growth [5][8] 3. **MUSA Ecosystem for User Adoption**: - The MUSA SDK and MUSA Deploy are designed to facilitate user migration to the new platform with minimal switching costs. The architecture supports various AI development frameworks, including PyTorch and PaddlePaddle, catering to diverse applications in sectors like finance and biotech [9] 4. **Enhanced Capabilities**: - The company's GPU can run a full version of Deepseek-V3, showcasing the improved capabilities of local chipsets to meet client requirements [8] 5. **Positive Industry Outlook**: - The management's positive tone regarding enhanced performance and rising client demand aligns with broader trends in the semiconductor industry, particularly in advanced node expansion and generative AI applications [2] Additional Important Information - **Technological Innovations**: - Key technologies include the integration of multiple engines, an in-house 3D graphics accelerator engine, and FP8 computing units to support AI model training [3] - **Market Positioning**: - The company is positioned to benefit from the growing demand for AI model training and graphic rendering, indicating a favorable market environment for its products [1][2] - **Investment Recommendations**: - Analysts recommend buying stocks of other companies in the semiconductor space, such as SMIC, Hua Hong, and Verisilicon, indicating a positive sentiment towards the sector as a whole [2] This summary encapsulates the essential insights from the conference call, highlighting Moore Thread's advancements in GPU technology and the favorable market conditions for the semiconductor industry.

Summary of Semiconductor Industry Conference Call Industry Overview - The semiconductor industry in Greater China is experiencing solid demand, with notable growth in integrated circuit (IC) production and import/export values. [1][2] Key Metrics - **IC Import/Export Values**: - IC import value increased by **13.9% YoY** in November 2025, compared to **10.2% YoY** in October 2025. [1][14] - IC export value rose by **34.2% YoY** and **10.5% MoM** to **US$18.5 billion** in November 2025. [10][25] - **Production Growth**: - IC production volume grew by **17.7% YoY** in October 2025, reaching **42 billion units**. [4][28] - **Revenue Growth**: - Total semiconductor revenues in October 2025 were up **20.6% YoY**, amounting to **US$19.5 billion**. [5][19] - Taiwan's semiconductor revenue growth was **18.4% YoY** in November 2025. [5][29] Market Dynamics - The increase in IC import average selling price (ASP) was **11.5% YoY** in November 2025. [1] - The days of inventory (DOI) in China's electronics sector was **55 days** in October 2025, above the average of previous years. [1][17] - The semiconductor sector is supported by advancements in generative AI, RISC V technology, and local suppliers gaining market share. [2][4] Investment Recommendations - Analysts recommend a "Buy" rating for several companies, including: - **Kematek** - **SMIC** (Target Price raised to **HK$134**) - **Hua Hong** (Upgraded to Buy) - **AMEC**, **VeriSilicon**, **Horizon Robotics** (Target Price raised to **HK$15.3**) [3][50] Equipment and Bidding Trends - Recent bidding activities from semiconductor manufacturers indicate a positive outlook for capital expenditures (capex) in the coming years. [11][41] - Specific equipment bids include photoresist stripping and inspection equipment, reflecting ongoing investments in production capabilities. [11] Additional Insights - The semiconductor test equipment import value decreased by **32.4% YoY** to **US$41.6 million** in October 2025. [9][34] - The lithography import volume saw a significant decline of **42% YoY**, while the ASP increased by **225% YoY**. [9][32] This summary encapsulates the key points from the conference call regarding the semiconductor industry, highlighting growth metrics, market dynamics, investment recommendations, and equipment trends.

Summary of China AI Semiconductor Conference Call Industry Overview - The focus is on the **China AI semiconductor industry**, particularly the advancements in AI chip supply and demand dynamics leading up to 2026 [1][2][3]. Key Insights - **Strong Performance**: China's AI-related stocks have shown robust performance in 2025, driven by innovations from **DeepSeek** and local AI chip advancements [1]. - **Consolidation Phase**: The market has entered a consolidation phase since October 2025, raising concerns about the sustainability of growth in the AI sector [1]. - **Future Projections**: The supply chain upside is expected to take center stage in 2026, with significant growth anticipated in AI capital expenditures (capex) [2][12]. Financial Projections - **AI Capex Growth**: AI capex is projected to grow at a **25% CAGR** from 2025 to 2028, reaching **USD 172 billion** by 2028 [2][29]. - **Total Capex for CSPs**: Total capex for China’s Cloud Service Providers (CSPs) and telecommunications is expected to grow at **13% CAGR**, reaching **USD 267 billion** by 2028 [2][27]. - **Healthy Spending**: Total capex for listed players is only **40-60%** of their free cash flow, indicating healthy spending levels [2]. Supply Chain Dynamics - **Bottlenecks**: The primary bottleneck currently is the constrained local advanced logic production capacity, which limits AI chip output [3]. - **Capacity Expansion**: Advanced logic capacity is expected to accelerate starting in 2026/27, leading to a significant increase in local AI chip sales by 2027/28 [3][55]. - **Market Share Shift**: Local players are projected to capture over **90%** of the market share by 2028, especially as NVIDIA's sales in China are not expected to resume due to ongoing investigations [3]. Company-Specific Insights - **Cambricon**: Upgraded to **Outperform** with a price target of **CNY 2,000**, reflecting strong growth potential due to increased AI chip demand [7][10]. - **Hygon**: Rated **Outperform** with a price target of **CNY 280**, based on projected earnings growth [7]. - **Hua Hong**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 140** for A-shares [8]. - **SMIC**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 150** for A-shares, driven by advanced logic capacity expansion [9]. - **NAURA and Piotech**: Both rated **Outperform** with price targets of **CNY 600** and **CNY 375**, respectively [10]. Investment Implications - **Sector Ranking**: The investment ranking is **AI chip > Semicap > Foundry**, with a strong preference for AI chip vendors like Cambricon due to growth momentum [15]. - **Defensive Stocks**: Semicap stocks are viewed as more defensive with reasonable valuations, benefiting from the shift in memory demand towards local suppliers [4]. Risks and Challenges - **NVIDIA Resumption**: The biggest risk is if NVIDIA resumes sales in China, which could undermine local vendors [14]. - **Market Sensitivity**: Chinese AI stocks may be affected by broader market trends, including potential crashes in US AI stocks [14]. - **Supply Chain Self-Sufficiency**: The advanced logic supply chain is not fully self-sufficient, which could delay capacity expansion in extreme scenarios [14]. Conclusion - The China AI semiconductor industry is poised for significant growth, driven by local innovations and increasing demand for AI chips. However, potential risks from global competitors and market dynamics must be closely monitored.