Summary of TongFu Microelectronics (TFME) 3Q25 Earnings Call Company Overview - **Company**: TongFu Microelectronics (002156.SZ) - **Industry**: Semiconductor Packaging and Testing (OSAT) Key Financial Highlights - **3Q25 Revenue**: Rmb7.1 billion, an increase of 18% YoY and 2% QoQ, exceeding consensus estimates by 3% [1][2] - **Gross Profit Margin (GPM)**: Increased by 10 basis points QoQ to 16.2%, the highest level in over three years, surpassing the consensus of 15.0% [1][2] - **Operating Expenses (Opex)**: Stable at 7.6% of revenue [1] - **Net Profit**: Rmb448 million, beating Street and Citi estimates of Rmb363 million and Rmb430 million respectively [1][2] Demand Drivers - **Key Customer**: Strong demand from AMD, particularly in data center (EPYC), computing (Zen 5), and gaming sectors [1] - **Domestic Demand**: Increasing domestic demand for advanced packaging solutions [1][2] Capacity Utilization - **Current Utilization**: Estimated at full-loading (80%-85%) [1] - **Future Outlook**: Anticipation of continued solid revenue and earnings through 2025-1H26, with a focus on monitoring key customer revenue momentum [1] Industry Trends - **'China-for-China' Trend**: International customers are increasingly shifting back-end operations to Chinese OSATs for products sold in China [2] - **Capacity Expansion**: As Chinese OSATs approach full utilization, potential capacity expansion is being monitored, which could signal the second half of the OSAT up-cycle [2] Valuation and Risks - **Target Price**: Set at Rmb30 based on a 2.9x 2025E P/B, indicating a potential downside of 31.7% from the current price of Rmb43.94 [3][12] - **Key Risks**: 1. Market share loss at key customers due to exclusion of AI-related business [13] 2. Geopolitical tensions affecting overseas demand [13] 3. Falling utilization rates post-industry capacity expansion [13] 4. US export restrictions impacting supply of back-end equipment [13] Earnings Summary (2023-2027E) - **2023A Net Profit**: Rmb169 million, with a diluted EPS of Rmb0.111 [5] - **2024A Net Profit**: Rmb678 million, with a diluted EPS of Rmb0.447 [5] - **2025E Net Profit**: Rmb1,097 million, with a diluted EPS of Rmb0.723 [5] - **2026E Net Profit**: Rmb1,419 million, with a diluted EPS of Rmb0.935 [5] - **2027E Net Profit**: Rmb1,729 million, with a diluted EPS of Rmb1.140 [5] Conclusion - TongFu Microelectronics demonstrated strong performance in 3Q25, driven by robust demand from AMD and increasing domestic needs for advanced packaging. The company is well-positioned for continued growth, although it faces several risks that could impact future performance.