25 August 2025 | 11:01AM HKT Hua Hong (1347.HK): Capacity expansion and ASP recovery on strong UT rates; 28nm as potential next driver; Neutral We are positive on Hua Hong's long-term potential, driven by the increasing local-for-local demand in China, the strong UT rate along with growing capacities, and its planned future migration from 40nm to 28nm. We expect the near-term drivers, including its continuous capacity expansion plans and ASP recovery supported by strong UT rates, to support the company's sh ...

Summary of Huahong Semiconductor Conference Call Company Overview - **Company**: Huahong Semiconductor - **Industry**: Semiconductor Manufacturing Key Points and Arguments Industry and Market Dynamics - Huahong Semiconductor has experienced significant price adjustments, particularly in power semiconductors and embedded flash memory platforms, which are expected to show substantial potential moving forward [2][5] - The company anticipates continued growth in MCU, power management, and RF sectors, while CIS remains stable with high-end products showing potential [2][8] - The automotive sector is expected to see increasing demand, with industrial control recovering and projected growth of 15%-20% in 2025 [4][22] Production Capacity and New Facilities - The new factory (Factory 9) is planned to have a total capacity of 83,000 wafers, with specific allocations for power semiconductors (25,000-30,000), power management (12,000), RF and CIS (10,000), and memory (33,000) [2][6] - Initial demand for the new factory will primarily come from domestic clients, with international demand expected to rise significantly after certifications from large overseas IDMs are completed by the end of 2025 [2][7] Financial Performance and Projections - In Q2 2025, North American customer revenue accounted for approximately 9.4%, with expectations to exceed 10% for the year despite potential tariff risks [2][13] - The company aims to improve gross margins to around 10% in the second half of 2025 through price adjustments and maintaining high capacity utilization [4][16] - Total R&D expenses for 2025 are projected at $110 million, primarily focused on 40nm technology [4][18] Domestic and International Market Trends - The revenue share from the Chinese market reached a historical high of 83%, but is expected to gradually decrease to 75%-80% as international client validation is completed [4][20] - The company is focusing on increasing domestic production capabilities and attracting new clients, including smaller firms with growth potential [12][20] Technological Advancements and Collaborations - Huahong Semiconductor is advancing its technology nodes from 55nm to 40nm and plans to reach 28nm in the future, maintaining a competitive edge in the market [4][26] - Collaboration with ST Micro focuses on developing advanced MCU products, with production expected at the 40nm node [4][28] Challenges and Risks - The company acknowledges potential risks from geopolitical factors affecting international business, particularly in the U.S. market [11][13] - Despite concerns over tariffs, the company believes its growth is not significantly impacted by subsidies or inventory adjustments [24] Future Outlook - The semiconductor industry is expected to recover in 2025, with Huahong Semiconductor projecting growth in both revenue and gross margins [32] - The company is optimistic about expanding its market presence and providing more foundry services to both domestic and international clients [32] Additional Important Information - The company has made significant progress in domestic production, with equipment localization expected to exceed 20% and raw material localization nearing 40%-50% [9] - The power device market is recovering after a significant downturn, driven by demand from industrial, automotive, and renewable energy sectors [31]

Investment Rating - The report maintains a "Buy" rating for the company, with a target price of 8 HKD, corresponding to a P/E of 20x for 2025 and 16x for 2026 [4][7]. Core Insights - The company reported a revenue of 2.24 billion USD for the first half of 2025, representing a year-on-year growth of 6.8%, driven by the continuous growth in the Asia-Pacific region [1]. - The adjusted EBITDA for the first half of 2025 reached 230 million USD, a year-on-year increase of 16.8%, benefiting from the higher revenue share from the Asia-Pacific region [2]. - The company is actively advancing its line control chassis technology, including line control steering and braking systems, with expectations of securing more orders in the second half of the year [3]. Revenue and Profitability - The company's gross margin improved by 1.5 percentage points year-on-year to 11.5%, with gross profit increasing by 22.7% to 260 million USD [2]. - The net profit attributable to shareholders surged by 304.5% year-on-year to 63.48 million USD, with a net profit margin of 2.8% [2]. - The Asia-Pacific region's revenue share increased by 2.3 percentage points to 30.6%, with a significantly higher EBITDA margin compared to North America and EMEASA [4]. Future Outlook - The company expects to achieve a record high in annual revenue, outperforming the market by 300-400 basis points, with a target of 5 billion USD in orders for the year [1]. - Revenue projections for 2025-2027 are estimated at 4.6 billion USD, 4.8 billion USD, and 5.1 billion USD, respectively, with net profits expected to grow significantly [4][6].

Group 1 - The core viewpoint of the report is that Shitwei (688213.SH) is rated as a "buy" due to its leading position in the domestic CIS market and its expansion into multiple sectors, including mobile and automotive [2] - The company started in the security sector and entered the "mobile + automotive" segment in 2020, driving growth across various fields [2] - In the smartphone sector, the demand for high-pixel camera image sensors (CIS) is increasing, and the company is capturing the high-end flagship market [2] - In the automotive electronics sector, the expansion of intelligent driving is broadening the downstream market, indicating a promising outlook for the company's automotive CIS business [2]

Summary of Conference Call on Power Semiconductor Industry Industry Overview - The conference call focused on the power semiconductor industry, specifically discussing the performance and outlook of Huahong and its various product platforms [1][2][3]. Key Points and Arguments Pricing and Revenue Trends - Huahong adjusted prices by 5%-8% in May, but the average selling price (ASP) declined in Q2 due to changes in product mix and new capacity at the factory [1][3]. - There is insufficient support for price increases in Q3, making the target of a 10% ASP increase for the year difficult to achieve [1][4]. - The overall order visibility is low, and the company expects to maintain the original ASP increase target, but the probability of achieving it is low [4]. Demand and Capacity Insights - Demand for the BCD process platform has significantly increased, with expected capacity growth by year-end [1][5]. - Major clients like MPs have increased orders, but there are concerns about dependency on single clients and the impact of pricing strategies on orders [1][5][6]. - The NODE platform has stable demand for ETOX, but demand for platforms like Ziguang and Jushen has decreased [1][9]. Product-Specific Developments - ETOX production is expected to increase, with stable demand from MCU and smart card applications [1][13][15]. - The MOSFET product structure is shifting from medium voltage SGT to low voltage products, with a decrease in demand for new energy orders [1][18][19]. - The eFlash total input volume is steadily increasing, with expectations to reach approximately 18-19k units by year-end [1][15]. Client and Order Dynamics - MPs' orders have increased from 14k at the beginning of 2024 to 16k in Q3, with a projected demand of 24k by year-end [6][7]. - Other clients like Nanxing and Aivi have also seen order increases, but overall demand has weakened [8][15]. - The DDIC production has been transferred to the factory, with stable customer demand but short-term design optimization issues affecting orders [30][31]. Future Outlook and Challenges - The company is cautious about future demand, particularly for 2026, with a pessimistic sales forecast [39]. - The overall market sentiment is weak, and there are concerns about the ability to meet ASP targets due to reduced demand and price sensitivity from end customers [36][39]. Additional Important Insights - The transition of production capacity to different product lines is ongoing, with plans to shift some capacity from ETOX to iFlash products [12]. - The company is facing challenges in maintaining production levels for IGBT and other products due to price constraints and customer demand fluctuations [26][27][28]. - The overall semiconductor supply chain, including silicon wafer prices, is stable, with a downward trend in prices noted [34]. This summary encapsulates the key discussions and insights from the conference call, highlighting the current state and future outlook of the power semiconductor industry.

Summary of SMIC (0981.HK) Conference Call Company Overview - **Company**: SMIC (Semiconductor Manufacturing International Corporation) - **Ticker**: 0981.HK - **Industry**: Semiconductor Foundry Key Points Financial Performance - **2Q25 Results**: Slightly beat estimates; net profit lower than consensus due to higher operating expenses and lower non-operating income [1][4] - **3Q25 Guidance**: Revenue expected to increase by 5% to 7% QoQ, indicating a recovery in growth [1][2] - **Gross Margin Guidance**: Expected to be between 18% and 20% for 3Q25, slightly lower than previous estimates [1][2] Capacity and Demand - **Utilization Rates**: High utilization rates supported by solid orders in analog products, CIS, and automotive sectors [2][3] - **Order Trends**: Management expects solid orders to continue, driving shipment expansions [2] - **8-inch Fabs**: Improvements in utilization rates driven by local Chinese customers, with a growing trend of providing manufacturing for overseas clients [3] Revenue and Earnings Revisions - **Earnings Revisions**: Adjustments made to 2025-2029 earnings estimates, primarily lowering gross margin and operating profit margin due to ongoing depreciation and amortization (D&A) [4][8] - **Revenue Projections**: Revenue for 2025 is projected at $9.24 billion, with a slight increase from previous estimates [8][24] Valuation and Price Target - **12-Month Price Target**: Maintained at HK$63.7 based on a 36x P/E ratio for 2028E earnings, discounted back to 2026E [9][20] - **A-Shares Price Target**: Unchanged at Rmb160.0, reflecting a 273% premium over H-shares [10][20] Risks and Challenges - **Key Risks**: 1. Weaker-than-expected demand in smartphones and consumer electronics [21] 2. Slower product diversification and capacity expansions [21] 3. Potential restrictions on access to equipment/materials due to U.S. regulations [21][22] Investment Thesis - **Long-Term Growth**: Positive outlook driven by local fabless customers' demand and gradual recovery in margins [23] - **Valuation**: Shares are considered attractively valued as they trade below historical average P/E ratios [23] Additional Insights - **Geopolitical Factors**: The company is adapting to geopolitical uncertainties by increasing local production capabilities [3] - **Market Position**: SMIC is the largest foundry in China, covering a wide range of technology nodes from 0.35um to 14nm [23] This summary encapsulates the essential insights from the conference call, highlighting SMIC's financial performance, capacity utilization, revenue projections, valuation, risks, and long-term growth potential.

Core Viewpoint - SMIC's Q2 2025 performance is driven by "technology + localization," with a revenue of $4.456 billion, a 22% year-on-year increase, outperforming industry growth [4]. Financial Performance - Q2 revenue reached $2.209 billion, a 1.7% decrease quarter-on-quarter, with a gross margin of 20.4%, down 2.1 percentage points [6]. - For the first half of 2025, total revenue was $4.456 billion, a 22% increase year-on-year, with a gross margin of 21.4%, up 7.6 percentage points [6]. - Capital expenditure for the first half was $3.301 billion, with a cash flow from operations of $1.07 billion and an investment cash flow of -$1.56 billion [6]. - Q3 guidance indicates a revenue increase of 5%-7% quarter-on-quarter, with a gross margin forecast of 18%-20% [6]. Business Highlights and Strategic Direction - Continued breakthroughs in advanced processes of 28nm and below, with significant revenue growth in analog chips and CIS, the latter increasing by 20% quarter-on-quarter [8]. - 8-inch capacity utilization reached 92.5%, up 2.9 percentage points, with a monthly capacity of 991,000 equivalent wafers [8]. - Domestic clients are accelerating the replacement of overseas shares, particularly in network equipment, with storage controller demand rising alongside domestic storage manufacturers' expansion [8]. - Revenue from automotive electronics accounts for 5%-6%, with a target to increase this to 10%, and a verification cycle of approximately 30 months [8]. - The impact of U.S. tariff policies is expected to affect revenue by only 1.3%, mitigated by customer inventory buffers and localized supply chains [8]. Management Statements - CEO Zhao Haijun indicated that short-term growth in Q3 will be driven by smart home and industrial IoT sectors, while long-term automotive electronics capacity is expected to double by 2026 [8]. - CFO Wu Junfeng stated that product mix optimization could offset 2 percentage points of depreciation pressure on gross margin [8]. Investor Q&A Summary - The growth drivers for analog chips and CIS are primarily from market share gains and accelerated domestic substitution, alongside ongoing capacity shortages [9]. - October orders exceed capacity, with uncertainty in November and December, but the company expects minimal impact [9]. - North American revenue accounts for 12.9%, with proposed 100% tariffs expected to impact total revenue by approximately 1.3% [9]. - Q3 gross margin guidance is achievable by maintaining high capacity utilization (92%-93%) to dilute unit depreciation [9]. - The company has initiated production line construction focused on power management and third-generation semiconductors, with capacity currently tight [10].

Summary of Hua Hong's Earnings Call Company Overview - **Company**: Hua Hong (1347.HK) - **Industry**: Semiconductor foundry focusing on specialty technologies Key Financial Highlights - **3Q25 Revenue Guidance**: Expected to grow by +10% to +13% QoQ, with gross margin (GM) guidance of 10% to 12% [1][2] - **2Q25 Results**: Revenue of US$566 million, representing an 18% YoY increase and a 5% QoQ increase. Gross margin was 10.9%, exceeding company guidance of 7% to 9% [1][10] - **Operating Loss**: Reported at US$36 million, which was better than expected, but net profit was lower than consensus at US$8 million [1][10] Demand and Pricing Outlook - **Demand Expectations**: Management anticipates solid demand from 1H25 to continue into the second half of the year [2] - **Pricing Adjustments**: The company is working on upward pricing adjustments, expected to reflect in 3Q and 4Q financials, with increases projected to be in the single-digit range [2][4] Capacity Expansion Plans - **Second 12'' Fab**: The ramp-up of the second 12'' fab is on track, increasing total capacity to 447k wpm by 2Q25, compared to 391k wpm in 4Q24. Management aims to bring 80%-90% of planned capacity online by 2H26 [3][4] - **Future Expansion**: A new fab is planned after the second 12'' fab to support continuous growth [3] Gross Margin and Operating Income - **3Q25 GM Guidance**: Expected to improve to 10% to 12%, supported by better utilization rates and cost efficiencies [4][8] - **4Q GM Visibility**: Management expressed low visibility for 4Q GM due to the introduction of new capacities [8] Earnings Revisions - **2025E Earnings Revision**: Net income estimates revised down by 23% due to potential dilution from non-controlling interests. Revenue estimates slightly reduced by 2%, while gross profit estimates increased by 3% [10][11] Valuation and Price Target - **Target Price**: Raised by 14.7% to HK$46.9, based on a target P/E of 35.3x for 2026E [11][21] - **Investment Rating**: Maintained at Neutral due to moderate upside potential [11][21] Risks and Considerations - **Key Risks**: Include stronger or weaker-than-expected end-market demand, ramp-up speed of the 12" fab, and uncertainties surrounding US-China trade relations [22][24] Conclusion - **Investment Thesis**: Hua Hong is positioned for long-term growth through capacity expansions and product optimization, despite facing near-term margin pressures from ASP competition and increasing depreciation and amortization burdens [24]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $2,209 million, down 1.7% sequentially [5] - Gross margin decreased to 20.4%, down 2.1 percentage points sequentially [6] - EBITDA was $1,129 million with an EBITDA margin of 51.1% [6] - Profit attributable to the company was RMB 132 million [6] - Total assets at the end of Q2 were $49.4 billion, with total cash on hand of $13.1 billion [6] - Total liabilities were $16.7 billion, with total debt of $11.9 billion [6] - For the first half of 2025, revenue was $4,456 million, up 22% year over year [8] Business Line Data and Key Metrics Changes - Blended ASP decreased by 6.4% sequentially, while wafer shipments increased by 4.3% to 2,390 standard logic eight-inch equivalent wafers [10] - Revenue from automotive electronics shipments grew by 20% quarter over quarter, primarily from various types of automotive grade chips [12] - Revenue from eight-inch wafers achieved a 7% quarter over quarter growth [13] - Revenue from CIS increased over 20% sequentially [14] Market Data and Key Metrics Changes - Revenue distribution by region: China 84%, America 13%, and Eurasia 3%, with no significant changes quarter over quarter [11] - By application, wafer revenue from smartphones, computers and tablets, consumer electronics, connectivity and IoT, industrial, and automotive accounted for 25%, 15%, 41%, 8%, and 11% respectively [11] Company Strategy and Development Direction - The company aims to exceed industry average performance in the same market for the year [17] - Focus on deep collaborations with domestic customers to gain market share in analog chips [13] - The company is preparing for potential changes in demand due to tariff policies and market conditions [17] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the potential impact of tariff policies and market stimulus on future demand [17] - Visibility for Q4 remains limited due to customer inventory buildup and potential slowdown in rush orders [16] - Confidence in continued demand despite external uncertainties [17] Other Important Information - Total capital expenditure for the first half of the year was $3,301 million [15] - Guidance for Q3 2025 indicates expected revenue growth of 5% to 7% sequentially, with gross margin anticipated to be in the range of 18% to 20% [8][16] Q&A Session Summary Question: What are the expectations for revenue growth in the upcoming quarters? - Management indicated that revenue is expected to increase by 5% to 7% sequentially in Q3 2025 [8] Question: How is the company addressing the challenges posed by tariff policies? - Management is actively collecting customer feedback and evaluating the impact of tariff policies on demand [17] Question: What is the outlook for automotive electronics shipments? - Automotive electronics shipments are expected to maintain steady growth, contributing significantly to revenue [12] Question: How does the company plan to manage inventory levels? - The company is working closely with customers to manage shipments and inventory levels effectively [10]

Core Viewpoint - DJI's recent launch of a panoramic camera indicates strong demand for its products, particularly those utilizing custom chips from OmniVision, highlighting the ongoing collaboration between DJI and OmniVision in the imaging technology sector [2][4]. Group 1: DJI's Product Development - DJI has been collaborating closely with OmniVision, with the latter being the primary chip supplier for DJI's mid-range drones [4]. - The upcoming high-end drones will feature a custom M43 sensor from OmniVision, which is expected to cost over $100 each [4]. - Rumors about DJI entering the mirrorless camera market have been confirmed, with plans to use OmniVision's CIS [4]. - DJI's action camera series currently uses OmniVision chips, and future models, including the Pocket series, are expected to transition to OmniVision as well [4]. Group 2: OmniVision's Market Position - OmniVision has signed a strategic cooperation agreement with Innosilicon, which will lead to increased use of OmniVision's CIS in Innosilicon's products [6]. - OmniVision currently holds over 4 million shares of Innosilicon, indicating a vested interest in the company's growth [6]. Group 3: Market Projections - The global drone market is estimated at over 8 million units, with DJI accounting for 6 million units. OmniVision's market share in drone CIS is projected to be around 70% [10]. - The demand for camera modules corresponding to CIS is expected to grow significantly, from 17 million units in 2025 to 45 million units by 2030 [10]. - The mirrorless camera market is estimated at 6 million units annually, with potential sales of 1 million units for DJI, translating to $100 million in revenue for OmniVision [11]. Group 4: Revenue Forecasts - OmniVision's revenue from emerging markets is projected to double, with contributions from DJI and Innosilicon expected to reach $300 million next year and over $400 million the following year [9][12]. - The anticipated profit margin for this segment is over 20%, indicating a significant contribution to OmniVision's overall profitability [12]. - The emerging market segment is expected to become a major revenue source, comparable to the contributions from mobile and automotive sectors within three years [12].