EB SECURITIES maintains a "buy" rating on HUA HONG SEMI (01347) as its 4Q25 performance meets expectations.

EB SECURITIES International released a research report stating that downstream demand is being driven by artificial intelligence and the storage cycle. It is expected that by 2026, HUA HONG SEMI (01347) will maintain a high level of capacity utilization with stable and increasing prices. However, the company's accelerated expansion still faces increased depreciation pressure. The company has adjusted its 2026-2027 net profit forecast to $142-$195 million USD (down 7%/up 3% from the previous forecast), with an additional forecast of $248 million for 2028, corresponding to a year-on-year increase of +158%/+38%/+27%. The current stock price corresponds to a PB ratio of 3.3/3.2x for 2026/2027. Optimistic about the company's market share growth driven by self-control and localization trends, process technology upgrades, and active production expansion, the injection of high-quality assets such as Huali Fab 5 will further boost performance and valuation. The rating for HUA HONG SEMI (H) remains a "buy". EB SECURITIES International's main points are as follows: Event 4Q25 performance meets company guidance. The company achieved revenue of $660 million in 4Q25, up 22.4% YoY and 3.9% QoQ, close to the upper limit of the company's guidance range of $650-660 million, driven by an increase in wafer shipments and ASP growth, but slightly lower than the market expectation of $666 million. Classified by wafer size, revenue for 8-inch wafers was $253 million, up 0.2% YoY and down 2.3% QoQ; revenue for 12-inch wafers was $407 million, up 41.9% YoY and 8.1% QoQ, accounting for 61.7% of revenue, up 8.5 percentage points YoY. Gross margin for 4Q25 was 13%, within the company's guidance range of 12%-14%, up 1.6 percentage points YoY and down 0.5 percentage points QoQ, with ASP growth driving the YoY increase and higher labor costs leading to the QoQ decrease. Net profit attributable to shareholders in 4Q25 was $17.5 million, below the market expectation of $37.4 million. For the full year 2025, revenue was $2.402 billion, up 19.9% YoY, driven by an increase in wafer shipments; gross margin was 11.8% YoY+, driven by upward ASP trends and cost optimization, partially offset by increased depreciation. Optimistic about strong demand for BCD and storage, maintaining high growth, cautiously optimistic about ASP in 2026 1) AI traction: Revenue from analog and power management chips grew 41% YoY in 4Q25, with AI data centers driving demand for power management chips. The company is optimistic about the sustained high-speed growth of BCD. 2) Storage is more favorable than negative for the company: Revenue from embedded NVMs increased by 31% YoY in 4Q25, while revenue from stand-alone NVMs increased by 23% YoY. The shortage of storage supply may lead to capacity crowding and overflow demand, and MCUs moving to higher process technology iterations are expected to bring opportunities for local customers. 3) Prices: Slight price increases were achieved in 2025; the company believes there is still room for price increases for 12-inch wafers in 2026, while the space for 8-inch wafers is relatively limited, suggesting structural price increases. Continued release of Fab 9 capacity, slightly lower capacity utilization rate, orderly progress in Huali Fab 5 acquisition Capacity utilization in 4Q25 was 103.8%, up 0.6 percentage points YoY but down 5.7 percentage points QoQ, with the decrease attributed to the time difference between rapid expansion period equipment, capacity, and orders. Capacity utilization for 2025 achieved 106.1% YoY+. Wafer shipments continued to rise, with equivalent shipments of 8-inch wafers at 1.448 million in 4Q25, up 19.4% YoY and 3.4% QoQ. The total capacity for 8-inch wafers in 4Q25 reached 486,000 wafers per month, up 3.9% QoQ. Looking ahead: 1) Continued expansion of Fab 9. It is expected that Fab 9 will continue to expand in 2026 and enter the final stage of expansion, with the company guiding for a YoY decrease in capital expenditure for 2026. 2) Orderly progress in the acquisition of Huali Fab 5, which has a production capacity of 38,000 wafers per month for 12-inch wafers. The bank believes that the continuous increase in wafer shipments in 2026 will continue to drive revenue growth. Stable revenue guidance for 1Q26, higher gross margin guidance The company has guided for revenue of $650-660 million in 1Q26, with a middle value corresponding to YoY+21.1% and QoQ-0.7%, lower than the market expectation of $695 million; gross margin guidance of 13-15%, with the middle value corresponding to YoY+4.8 percentage points and QoQ+1 percentage point, exceeding the market expectation of 13.2%. The bank judges that: 1) The company will dynamically adjust and balance in terms of expansion, price increases, capacity utilization, and profitability, considering the AI wave and the storage cycle, with strong downstream demand and addition of "local for local" to handle overseas customer orders. The high capacity utilization in 2026 is still guaranteed, with continuous expansion of Fab 9, and it is expected that the increase in wafer shipments in 2026 will drive revenue growth. 2) Profitability continues to recover. The bank expects prices to continue to rise steadily in the future. Despite the increased depreciation pressure from Fab 9, the effects of price increases and economies of scale are expected to offset this, combined with the company's active cost control, maintaining a recovery trend in profitability. Risk warning: Geopolitical risks; semiconductor cycle downturn; intensified industry competition; delayed technology iteration.