26 August 2025 | 8:37AM CST Gigadevice (603986.SS): Upbeat guidance on DRAM; strong 3Q earnings outlook on price hikes; Buy In our preview note (link), we reiterated our constructive view on the stock on back of earnings acceleration into 3Q25, and noted key pushbacks prior to the print being the potential soft 2Q25 results and DRAM pricing sustainability. In 2Q25 results and the earnings call, while 2Q earnings were soft vs. our expectation, this key overhang has been removed in our view. Specifically, man ...

Accessible version However, the chip inventory de-stocking trend in the China market may have decelerated again in June/July. Billed integrated circuit (IC) shipments in China were 13.9bn units in June 2025, -1% YoY. The shipment growth was muted vs 19%/14% YoY in April/May. On the supply side, the IC import and domestic manufacturing volumes were 55bn and 47bn units in July, +12% and +25% YoY, respectively. Even if considering 17% YoY growth in the IC export volume, we note the IC supply growth to the Chin ...

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]

Summary of GigaDevice Conference Call Company Overview - **Company**: GigaDevice (603986.SS) - **Industry**: Semiconductor design, focusing on NOR flash, MCU, and specialty DRAM products Key Financial Highlights - **2Q25 Revenue**: Expected to be Rmb2.37 billion, representing a 20% year-over-year (YoY) increase and a 24% quarter-over-quarter (QoQ) increase [1][4] - **Net Profit for 2Q25**: Expected to be Rmb380 million, a 22% YoY increase and a 62% QoQ increase [1][6] - **Gross Margin (GM)**: Expected to improve to 39.2% in 2Q25, up 1 percentage point YoY and 1.7 percentage points QoQ [4][6] DRAM Pricing and Market Dynamics - **DRAM Price Increase**: The increase in DDR4 DRAM prices is a significant driver for GigaDevice's earnings in 2Q25, with spot prices for DDR4 8Gb products rising by 1-2 times compared to the end of 2024 [4][8] - **Future Expectations**: Anticipated further increases in contract prices for DDR4 DRAM in 3Q25, with gross margins expected to reach 35% [8] - **Market Sentiment**: Despite strong DRAM pricing trends, GigaDevice's stock price has remained relatively stable, raising concerns about the sustainability of DRAM price increases and the current valuation [1][2] Growth Outlook - **3Q25 Earnings Growth**: Expected acceleration in earnings growth driven by continued DRAM price increases [2][10] - **Industrial Demand**: The industrial end-market accounts for approximately 40% of GigaDevice's MCU segment revenue, with demand expected to remain robust due to low inventory levels and restocking activities [9] Valuation and Investment Thesis - **Current Valuation**: The stock trades at 51x 2025E P/E and 31x 2026E P/E, which some investors may find demanding [10] - **Price Target**: The 12-month target price is set at Rmb151, based on a 40x 2026E P/E [19][13] - **Investment Recommendation**: The company is rated as a Buy, with expectations of entering a new growth cycle driven by specialty DRAM product expansion and stable NOR flash and MCU business [18] Risks and Considerations - **Key Risks**: Include slower-than-expected DRAM ramp, geopolitical tensions affecting supply chains, and weaker-than-expected growth in NOR and MCU segments [19][20] Conclusion - GigaDevice is positioned for growth with strong earnings momentum driven by DRAM pricing recovery and robust industrial demand, despite concerns regarding valuation and market sustainability. The investment outlook remains positive with a Buy rating and a target price reflecting anticipated earnings growth.

Investment Rating - The report maintains a Neutral rating for Hua Hong, with a 12-month target price of HK$40.9, indicating a relatively lower upside potential from the current price of HK$35.65, which translates to an upside of 14.7% [1][12]. Core Insights - Hua Hong's management is optimistic about operations, reporting that utilization (UT) rates across major fabs are at 100% or above, driven by strong demand in power discrete, microcontrollers (MCUs), and power management integrated circuits (PMICs) [1][3]. - The company has begun to implement price increases for both 8-inch and 12-inch products, anticipating that this will enhance gross margins in the upcoming quarters [2][11]. - Capacity expansion is ongoing, with plans to ramp up the second 12-inch fab to 83,000 wafers per month (wpm) and potential future capacities at 28nm and 22nm [4][11]. Pricing Outlook - The pricing strategy is set to improve, with management confident in the ability to raise prices due to solid demand, which is expected to positively impact gross margins [2][11]. Utilization Rates - Management reports full loading across its fabs, except for the new fab that is in the ramp-up phase, with a noted recovery in demand for power discrete products and sustained demand for PMICs related to AI applications [3][11]. Capacity Expansion Plans - The second 12-inch fab is being ramped up, with expectations to achieve positive gross margins once it surpasses 50,000 wpm of loading, while the first 12-inch fab is already achieving positive gross margins [4][8]. Financial Projections - Revenue projections for the next few years indicate growth, with expected revenues of $2,004 million in 2024, increasing to $3,910.5 million by 2027 [12].