Summary of Conference Call Notes Industry Overview - **Industry**: Greater China Semiconductors - **Focus**: Memory products, specifically DDR4 and LPDDR4 Key Points 1. **Correction on DDR4 Pricing Reports**: Recent reports from Taiwanese media claiming that CXMT is selling DDR4 at significant discounts are deemed incorrect. CXMT no longer produces DDR4 products and only provides foundry services for GigaDevice's DDR4 and LPDDR4 products [2][1] 2. **GigaDevice's Performance**: GigaDevice reported a year-over-year increase in DRAM procurement value from CXMT in the first half of 2026, attributed to a pricing hike [2][1] 3. **Outlook on Memory Players**: The analysis remains bullish on old memory players, particularly reiterating Winbond Electronics Corp as a top pick due to expected strong DRAM pricing and sustainable NOR price increases [2][7] 4. **Valuation Methodology**: Winbond Electronics Corp is valued at a base case of 3.9x 2026 estimated price-to-book ratio, which is higher than its historical range of 0.5-1.5x since 2017, reflecting strong market conditions [7][1] 5. **Risks Identified**: - **Upside Risks**: Increased NOR Flash pricing due to stronger demand, and stronger-than-expected DRAM pricing due to ongoing supply shortages [9][1] - **Downside Risks**: Potential downcycle in NOR Flash pricing due to weaker demand, and lower-than-expected DRAM pricing due to oversupply [9][1] Additional Important Information - **Analyst Team**: The report is prepared by a team of analysts including Daniel Yen, CFA, Charlie Chan, Daisy Dai, CFA, and Tiffany Yeh, with contact information provided for further inquiries [4][1] - **Investment Banking Relationships**: Morgan Stanley has investment banking relationships with several companies in the semiconductor sector, which may present potential conflicts of interest [5][1] - **Market Ratings**: The report utilizes a relative rating system, categorizing stocks as Overweight, Equal-weight, Not-Rated, or Underweight, without assigning traditional Buy, Hold, or Sell ratings [26][1] This summary encapsulates the critical insights and data from the conference call, focusing on the semiconductor industry dynamics and specific company evaluations.

Summary of Conference Call Notes on Greater China Semiconductors Industry Overview - The focus is on the semiconductor industry in Greater China, particularly memory stocks and companies involved in integrated device manufacturing (IDM), foundry services, and IC design. Key Companies Discussed 1. **Winbond** - Remains the top pick for investment in the sector [1] 2. **Macronix** - Plans to raise fab utilization and execute pricing power, delaying 3D NOR development [4] - Will invest NT$22 billion (~US$700 million) to increase 12-inch fab production capacity from 20k to 30k wafers per month, addressing an "extreme shortage" in eMMC [4][10] - Expected to catch up on NOR pricing hikes and respond to MLC market undersupply from 1Q26 [10] 3. **Powerchip** - Anticipated re-rating due to a partnership with Micron, with potential long-term benefits from advanced DRAM production [5] - Valuation methodology changed to book value, with a price target set at NT$77, based on 1.7x book value per share (BVPS) [5][34] - Expected earnings upside and pricing power from 2Q26 [10] 4. **GigaDevice** - More disciplined in pricing adjustments, focusing on new business areas [6] - Expected to show meaningful margin expansion in 1H26 [10] Market Dynamics - IDMs are leading the cycle outperformance, with laggards expected to catch up in share price performance [3] - The under-guidance from Nanya Tech presents a good entry point for investors [3] - The memory up-cycle is anticipated to continue, with 1Q26 marking the third quarter of this cycle [3] Financial Projections - Earnings estimates and price targets have been raised for Macronix, GigaDevice, and Powerchip [10] - Macronix's price target increased from NT$72.50 to NT$93.00 [7] - GigaDevice's price target raised from RMB288.00 to RMB355.00 [7] - Powerchip's price target increased from NT$56.00 to NT$77.00 [7] Additional Insights - The semiconductor industry is experiencing a shift with increased demand for specialty DRAM and NAND products, driven by consumer electronics [41] - The pricing power in the industry is expected to remain strong into 2026, with potential risks from competition and inventory levels [51] - The overall sentiment remains positive, with a focus on the long-term benefits of partnerships and technological advancements in production processes [39][41] Conclusion - The semiconductor sector in Greater China is poised for growth, with specific companies like Winbond, Macronix, Powerchip, and GigaDevice expected to perform well. The anticipated pricing power and market dynamics suggest a favorable investment environment, despite potential risks from competition and market fluctuations.

Summary of Conference Call on Greater China Semiconductors Industry Overview - The semiconductor industry, particularly memory segments (DRAM, NAND, NOR Flash), is experiencing an unprecedented supercycle driven by AI demand [1][2][3] - Chinese memory players are aggressively expanding capacity to meet rising demand [1][2] Key Points on DRAM - **DDR4 Shortage**: Expected to continue until at least Q4 2026, with a projected 10-15% undersupply over the next three quarters [2][10][12] - **Price Increases**: Nanya Tech reported a preliminary revenue increase of 79% Q/Q, with average selling prices (ASPs) expected to rise at least 20% Q/Q as market dynamics favor sellers [2][11] - **Market Dynamics**: Mainstream memory vendors have ceased providing pricing quotes to enterprise customers, indicating potential for further price increases [2] Key Points on NAND - **Divergent Demand**: NAND demand is increasing significantly in AI applications, with CSPs doubling their NL eSSD orders for 2026 [3][48] - **Projected Shortages**: Anticipated 2% NAND shortage in 2026, with a bull case projecting shortages widening to 8% by year-end [3][48] - **Price Expectations**: NAND pricing is expected to rise by at least mid-teens percentage in 2026, benefiting companies like Phison [3][48] Key Points on NOR Flash - **Pricing Support**: NOR pricing is expected to remain strong due to capped supply growth and potential demand from IoT applications [4] - **Market Share**: AirPods could account for 5-10% of global NOR demand by 2026, indicating sustained price hikes [4] Company-Specific Insights - **Price Target Adjustments**: Price targets raised for Nanya Tech (from NT$90 to NT$110), Phison (from NT$800 to NT$1,000), and Silicon Motion (from US$88 to US$100) [7] - **Investment Recommendations**: Companies like Nanya Tech, Winbond, and GigaDevice are favored due to expected price hikes in DRAM [5][16] - **Long-term Outlook**: Phison's earnings estimates revised upwards by 3% for 2026 and 6% for 2027, reflecting strong NAND pricing trends [68] Additional Insights - **Localization Trends**: Ongoing localization of wafer fab equipment in China is expected to strengthen the domestic semiconductor industry [59][61] - **Capacity Expansion**: CXMT and YMTC are set to expand their capacities significantly, with CXMT potentially exceeding 300k wpm by 2026 [61][62] - **Market Sentiment**: The overall sentiment in the semiconductor industry remains attractive, with strong growth prospects driven by AI and memory demand [7][59] This summary encapsulates the key insights from the conference call regarding the semiconductor industry, particularly focusing on memory segments and specific companies within the Greater China region.

Summary of Conference Call on Greater China Semiconductors Industry Overview - The semiconductor industry, particularly memory segments (DRAM, NAND, NOR Flash), is experiencing an unprecedented supercycle driven by AI demand [1][2][3] - Chinese memory players are aggressively expanding capacity to meet rising demand [1][2] Key Points on DRAM - **DDR4 Shortage**: Expected to continue until at least Q4 2026, with a projected 10-15% undersupply over the next three quarters, potentially worsened by back-end constraints [2][10][12] - **Price Increases**: Nanya Tech reported a preliminary revenue increase of 79% Q/Q, with average selling prices (ASPs) expected to rise at least 20% Q/Q as market dynamics favor sellers [2][11] - **Long-term Outlook**: Mainstream DRAM players are likely to focus on DDR5 and HBM, providing minimal support for DDR4, which is expected to see a significant decline in demand [14][15] Key Points on NAND - **Demand Divergence**: NAND demand is increasing significantly in AI applications, with CSPs doubling their NL eSSD orders for 2026 [3][48] - **Projected Shortages**: Anticipated 2% NAND shortage in 2026, with a bull case projecting up to an 8% shortage by year-end [3][48] - **Price Expectations**: NAND pricing is expected to rise by at least mid-teens percentage in 2026, benefiting companies like Phison [3][48] Key Points on NOR Flash - **Pricing Support**: NOR pricing is expected to remain well-supported due to capped supply growth and potential demand from IoT applications [4] - **Market Dynamics**: AirPods could account for 5-10% of global NOR demand by 2026, indicating sustained price hikes into 2026 [4] Company-Specific Insights - **Price Target Adjustments**: Price targets raised for Nanya Tech (from NT$90 to NT$110), Phison (from NT$800 to NT$1,000), and Silicon Motion (from US$88 to US$100) [7] - **Investment Recommendations**: Companies like Nanya Tech, Winbond, and GigaDevice are favored due to their positioning in the memory upcycle [5][16] - **Earnings Forecasts**: Phison's EPS forecasts have been revised upward by 3% for 2026 and 6% for 2027, reflecting strong NAND pricing trends [68] Additional Insights - **Localization Trends**: Ongoing localization of wafer fab equipment in China is expected to strengthen the domestic semiconductor industry [59][60] - **Capacity Expansion**: CXMT and YMTC are set to expand their capacities significantly, with CXMT potentially exceeding 300k wpm in the long term [61][62] Conclusion - The semiconductor industry, particularly in memory segments, is poised for significant growth driven by AI demand and capacity expansions from Chinese players. Companies like Nanya Tech, Phison, and SIMO are well-positioned to benefit from these trends, with favorable pricing dynamics expected to continue into 2026 and beyond.

Core Viewpoint - The report from Guosheng Securities highlights that Shannon Semiconductor is a leading company in semiconductor distribution, driven by a dual strategy of "distribution + products" [1] Distribution - In 2021, the company completed the acquisition of United Technology, entering the semiconductor distribution sector and officially rebranding as Shannon Semiconductor [1] - The company holds agency rights for major global semiconductor manufacturers such as SK Hynix, MediaTek, and AMD (which it will obtain in May 2024), as well as for leading domestic chip manufacturers like GigaDevice, Datang Storage, and Cambricon [1] - In 2024, Shannon Semiconductor is ranked 14th among global semiconductor component distributors and 3rd among distributors in mainland China [1] Products - In 2023, the company established a joint venture, Shenzhen Haipu Storage, with partners SK Hynix and Dapu Microelectronics, to enter the enterprise SSD market [1] - In 2024, the three parties will jointly establish a subsidiary, Wuxi Haipu Storage, to fill the gap in enterprise DRAM offerings [1] Growth Opportunities - The company is expected to benefit from the growth in electronic component business and the increasing demand for storage products driven by AI, leading to revenue performance growth [1] - Compared to peer companies, Shannon Semiconductor possesses a valuation advantage, prompting a "buy" rating in the initial coverage [1]

Investment Rating - The report assigns an "In-Line" investment rating for the Greater China Tech Semiconductors industry [5]. Core Insights - The report emphasizes a positive outlook for auto semiconductor localization in China, driven by the dominance of Chinese EVs in the global market, government support, and sufficient mature node foundry supply [1][19]. - Three key investment themes are identified within the China auto semiconductor supply chain, focusing on power semiconductors, autonomous driving chips, and microcontroller units (MCUs) [20][21]. Summary by Sections Investment Themes - The report identifies three main investment themes in the China auto semiconductor supply chain: 1. **Power Semiconductors**: Companies like Yangjie Technology and Starpower are highlighted for their strong positions in the market, with Yangjie showing a stable net margin of approximately 18% over the last three years [2][20]. 2. **Autonomous Driving Chips**: Companies such as Horizon Robotics and Alchip are noted for their roles in the growing ADAS market, with increasing adoption in more affordable EVs [21][23]. 3. **Microcontroller Units (MCUs)**: GigaDevice is recognized for its potential to benefit from localization trends, despite the current low self-sufficiency ratio of 3% in auto MCUs [21][40]. Market Dynamics - The report discusses the competitive landscape, noting that global auto semiconductor vendors from Europe, Japan, and the US dominate the market, with Greater China's share accounting for less than 5% [8][22]. - The growth of the electric vehicle (EV) market in China is highlighted, with expectations for EV production to nearly triple by 2030, leading to increased semiconductor content per vehicle [22][36]. Self-Sufficiency and Growth Potential - The report projects that China's auto semiconductor self-sufficiency will reach 28% by 2027, with significant growth opportunities in power discretes and MCUs due to their current low self-sufficiency ratios [10][46]. - The report indicates that local power semiconductor companies are willing to sacrifice margins for market share, which may lead to increased competitiveness against global players [26]. Export Opportunities - The potential for direct exports of auto semiconductors from China is deemed low, with the focus instead on leveraging EV exports, which are expected to grow by 31% in 2025 [4][19]. Stock Recommendations - The report provides a list of recommended stocks, with Yangjie Technology and OmniVision favored for their growth prospects in the auto segment, while Horizon Robotics faces challenges due to heavy R&D investments [2][18].

Investment Rating - The report does not explicitly state an investment rating for the industry or specific companies [1]. Core Insights - The report highlights a tentative US-China détente following a call between Trump and Xi, with discussions on trade and potential sanctions [1]. - The HSCEI index increased by 2.5% and the CSI 300 by 0.9% during the week [1]. - China is considering a RMB500 billion investment to accelerate infrastructure projects in AI, digital economy, and consumption [1]. - The report notes that the IT, Communication Services, and Broadline Retail sectors outperformed, while Industrials, Consumer Staples, and Energy sectors underperformed [1]. Key Themes Update - The report identifies key themes in the China market, focusing on index-heavy stocks with high dividend yields and local champions expanding globally [12]. - High yield stocks listed include CCB, ICBC, and PetroChina, with dividend yields ranging from 5.1% to 7.1% [12]. - Local champions going global include companies like BYD and Great Wall Motor, which are less impacted by US/EU tariffs [12]. Market Movements and Capital Flows - The report indicates that the A-share market saw a 22.9% year-over-year increase in new account openings in May [3]. - Preliminary data shows that May passenger vehicle wholesales increased by 14% year-over-year, with NEV sales up by 38% [3]. Earnings Revisions - The report does not provide specific details on earnings revisions for the industry or companies [1]. Recovery Trends - The report notes that the top 100 developers' home sales decreased by 8.6% year-over-year in May [3]. - Average new home prices in 100 cities increased by 0.3% month-over-month in May, while secondary home prices decreased by 0.7% [3]. Key Events - The report mentions that the US made tough requests to Vietnam in trade talks, including reducing reliance on Chinese industrial goods [2]. - The PBOC is set to inject RMB1 trillion via outright reverse repos in June [2]. Key News - The report highlights that the EU voted to limit China's access to its medical device procurement [1]. - China is reportedly considering a major deal to order hundreds of Airbus jets during EU leaders' visit [1].

Investment Rating - The report maintains a bullish outlook on stocks related to Reliability of Power/Water/Energy, Efficiency of Energy/Resources/Land, and solutions for Aging Populations/labor strains [1][15][38] Core Insights - Sustainable funds with broader APAC regional mandates have outperformed non-ESG peers for six consecutive quarters, while those with individual country mandates have struggled [1][35] - Performance is deemed more critical than policy for the growth of Sustainable Investing's AUM penetration, with a focus on quality and governance [1][13] - The report highlights a notable increase in AUM penetration for ANZ-focused Sustainable funds, reaching 4.8% by 1Q25, up 23 basis points year-over-year [12] APAC Fund Performance and Flows - APAC-focused Sustainable equity AUM remained flat at US$212 billion, with minor outflows of -US$0.9 billion in 1Q25, primarily from Japan and Emerging Markets-focused funds [9][19] - Passive Sustainable strategies now represent 52% of total APAC-focused Sustainable AUM, attracting US$1.0 billion of inflows in 1Q25 [9][19] - Sustainable funds in the top two quintiles based on 3-year risk-adjusted returns saw cumulative inflows of +US$6.0 billion in 2024, contrasting with -US$16 billion outflows in the bottom cohort [10][12] Stock Ideas - New entrants into the E&S Leaders screen include companies like JYP Entertainment, Kweichow Moutai, and Tata Consultancy, all rated as Buy by Goldman Sachs [6][7] - Thematic stock in focus includes Harmonic Drive Systems, which aligns with Green Capex and Aging Populations Solutions themes [6] Sustainable Fund Trends - The report notes that the median performance of APAC-focused Sustainable funds was at the 45th percentile in 1Q25, indicating underperformance relative to peers [35][42] - Greater China-focused Sustainable funds have shown significant impact on median performance, comprising approximately 50% of the funds tracked [36][44] - The report emphasizes a less-is-more approach to Sustainable integration strategies, focusing on measurable metrics [38]