Summary of Hua Hong's Conference Call Company Overview - **Company**: Hua Hong (1347.HK) - **Industry**: Semiconductor foundry focusing on specialty technologies Key Points and Arguments 1. **Long-term Potential**: Hua Hong's long-term potential is supported by increasing local demand in China, strong utilization (UT) rates, and planned migration from 40nm to 28nm technology [1][20] 2. **Utilization Rates**: The company reported a UT rate of 108.3% in 2Q25, indicating strong demand driven by local preferences and recovery in end markets such as smartphones, consumer electronics, and electric vehicles (EVs) [2][20] 3. **Capacity Expansion**: Hua Hong's capacity increased to 447k wafers per month (in 8-inch equivalent) in 2Q25, a 14% year-over-year increase. The second 12'' fab is expected to ramp up to 80%-90% capacity by year-end [3][20] 4. **Pricing Strategy**: The company is gradually increasing pricing to offset rising depreciation and amortization (D&A) costs associated with new capacity additions [2][20] 5. **Future Migration Plans**: Management plans to migrate to 28nm technology, which is expected to drive new demand and improve average selling prices (ASP) and profitability [9][20] 6. **Earnings Revision**: Earnings estimates for 2025-2029 have been reduced by 33% to 2% due to higher operating expenses, while revenue estimates remain unchanged [10][20] 7. **Target Price and Valuation**: The target price is raised by 13.9% to HK$53.4, based on a target P/E of 45.4x for 2026E, reflecting a re-rating of the semiconductor manufacturing industry [11][22] 8. **Risks**: Key risks include fluctuations in end-market demand, ramp-up speed of the new fab, and uncertainties related to US-China trade relations [23][22] Additional Important Information - **Financial Performance**: The company expects to see a gradual improvement in gross margins, with projections of 10.9% in 2025E and 21.9% by 2029E [11][17] - **Investment Thesis**: The investment thesis is based on Hua Hong's diversified specialty technologies and localization opportunities, although near-term margins may be pressured by ASP competition and increasing D&A burdens [20][22] - **Market Position**: Hua Hong is positioned within a competitive landscape, with a focus on specialty technologies and a shift towards higher-end node processes [20][22] This summary encapsulates the critical insights from the conference call, highlighting Hua Hong's strategic direction, financial outlook, and market challenges.