Target price of 70 yuan! UBS initiates coverage of Changxin Technology (688825.SH)!

UBS has initiated coverage of Changxin Technology (688825.SH) with a "Buy" rating and a target price of 70 yuan. The DRAM supercycle and the domestic demand for semiconductors will drive Changxin Technology into a phase of rapid growth. The company's net profit is expected to reach 139.7 billion yuan, 332.8 billion yuan, and 428.2 billion yuan for the years 2026 to 2028, with a compound annual growth rate of approximately 75%. 1. Core Views On August 7, 2026, UBS initiated coverage of Changxin Technology (688825.SH) with a "Buy" rating and a target price of 70 yuan. Based on the closing price of 52.48 yuan that day, the target price represents an upside of about 33% from the current share price. This marks the first official coverage by a large international investment bank since Changxin Technology debuted on the STAR Market on July 27. UBS believes that Changxin Technology is at the confluence of multiple positive factors: a global DRAM supply shortage, AI-driven demand growth, and accelerated domestic demand, suggesting that profitability will likely experience a "Davis Double Play" in the coming years. 2. In-depth Analysis of Core Content (1) Profit Forecast: 75% Compound Growth Rate, Significantly Exceeding Market Expectations UBS's profit forecast is extremely optimistic, detailed as follows: Key Highlights: - An average annual compound growth rate of 75%, approximately 19% higher than the market consensus average from Wind - EBIT margins significantly exceeding the historical industry average for DRAM, maintaining high levels between 75% and 85% - Changxin Technology's revenue in Q1 2026 reached 50.8 billion yuan, with a net profit of 24.762 billion yuansurpassing the total net profit of all 605 companies listed on the STAR Market for that quarter UBS's profit forecast is based on three core pillars. (2) Pillar One: DRAM SupercycleSupply Shortage Expected to Last at Least Until Q2 2028 UBS predicts that the global DRAM industry is undergoing a rare supercycle, with supply shortages expected to persist at least until the second quarter of 2028. Demand Side: Structural Growth Driven by AI Servers have become the core driver of DRAM growth. According to Gartner data: - From 2025 to 2027, the compound annual growth rate for server DRAM demand is expected to reach 66%, significantly higher than the overall DRAM market growth of about 30% - The DRAM configuration for AI servers is 27 times that of traditional servers Price Side: DDR Prices Soar by 137% Over Two Years UBS expects an epic increase in DRAM contract prices: - DDR contract prices are projected to rise from $0.40/Gb in 2025 to $1.61/Gb in 2026, and further to $2.24/Gb in 2027representing a compound growth rate of 137% over two years - Average HBM price is expected to increase from $1.52/Gb in 2025 to $3.13/Gb in 2027 Self-Reinforcing Core Logic: Major manufacturers such as Samsung, SK Hynix, and Micron continue to tilt their production capacity toward HBM, leading to tighter supply of traditional DDR. Currently, Changxin Technology's revenue structure mainly consists of DDR (32%) and LPDDR (66%), which benefits directly from the surge in bulk DRAM prices. (3) Pillar Two: Capacity ExpansionGlobal Market Share Expected to Reach 10% by 2028 Capacity expansion serves as the second engine for Changxin Technology's growth: Capacity Planning: - Monthly DRAM production capacity is expected to increase from 240,000 wafers at the end of 2025 to 466,000 wafers by the end of 2028, nearly doubling - The new capacity will stem from expansions at existing factories in Hefei and Beijing, as well as newly constructed wafer fabs in Shanghai and Hefei Market Share: - The compound growth rate for DRAM unit shipments from 2025 to 2028 is expected to reach 40%, with a projected volume of approximately 58 billion GB by 2028 - Global DRAM supply share is anticipated to rise from about 7% in 2025 to around 10% in 2028 Process Upgrades: - Changxin Technology has progressed from G1 and G3 nodes to the G4 node, and is advancing toward the G5 node Advanced process migration will enhance per-wafer storage capacity, leading to unit shipment growth rates that exceed capacity growth rates (4) Pillar Three: Domestic DemandMajor Client Orders Locked in Ahead of Time The demand for domestic semiconductors offers Changxin Technology reliable growth potential: Locked-in Major Client Orders: - ByteDance: Signed a DRAM procurement agreement worth over $7 billion - Tencent: Signed a long-term supply agreement for server DRAM valued at over 20 billion yuan - Alibaba, Lenovo, and other companies have also become clients of the company - Shenzhen Transsion Holdings Co., Ltd.: The proportion of DRAM procurement from Changxin Technology has exceeded 50% Market Share Target: UBS estimates that Changxin Technologys share of the Chinese server DRAM market will increase from 12% in 2025 to approximately 20% in 2028 Server DRAM unit shipments are projected to grow from 49 billion GB to 295 billion GB, with a compound annual growth rate of 82% Product Structure Upgrade: The revenue share of server DRAM is expected to rise from 26% to approximately 51% by 2028, while mobile DRAM's share will decrease from 59% to 38% UBS expects gross margins to reach 82%, 89%, and 89% for the years 2026 to 2028, respectively, as the proportion of depreciation in revenue drops from the previous year's range of 40%-119% to 6%-10% (5) Valuation Method: 8.6X Price-to-Book Ratio + 37% ROE UBSs valuation logic for the target price of 70 yuan is as follows: The target price corresponds to a projected price-to-book ratio (P/B) of 8.6 times for 2027, which is about a 40% premium over the average level of 6.1 times for A-share wafer foundries Based on a projected average return on equity (ROE) of 37% from 2028 to 2030, along with an 8.5% cost of capital The target price implies an upside of approximately 33% from the current stock price 3. Investment Analysis (1) Opportunity Dimension 1. Scarcity Premium of the Supercycle UBS's core judgmentthat the DRAM supply shortage will last until Q2 2028if realized, will allow Changxin Technology to enjoy an extreme price environment for over two years. Historically, DRAM cycles typically last 12-18 months, making the length and intensity of this cycle rare. The assumption that DDR prices will rise from $0.40/Gb to $2.24/Gb (+460%) would yield significant earnings elasticity for Changxin Technology. 2. Deterministic Demand from Domestic Substitution Long-term agreements with major clients like ByteDance and Tencent have already locked in a substantial proportion of future capacity. This "sales-driven production" model reduces the risk of capacity expansion and increases the predictability of profit forecasts compared to general semiconductor cyclicals. 3. Qualitative Change in Cost Structure The proportion of depreciation in revenue has sharply dropped from 40%-119% to 6%-10%, which is the core basis of UBS's forecast for high profit margins. As the previous massive capital expenditures gradually depreciate, Changxin Technology's profit leverage will be greatly magnifieda "late-mover advantage" that other DRAM manufacturers find hard to replicate. 4. Valuation Restructuring from International Investment Bank Endorsement As the first large international investment bank to cover Changxin Technology, UBS's "Buy" rating may draw attention from more foreign institutional investors. With a global DRAM market share of 7%, Changxin Technology ranks fourth globally, and its valuation framework is likely to shift from "Chinese semiconductor company" to "global DRAM giant." (2) Risk Dimension 1. Extremely Optimistic Assumptions in Profit Forecast UBS's profit projections contain several extreme assumptions; any deviation could significantly impact the results: 2. Uncertainty in the Global DRAM Supply and Demand Landscape UBS predicts the supply shortage will continue until Q2 2028, but this prediction faces multiple challenges: - Samsung, SK Hynix, and Micron are also expanding production, and new capacity could alter the supply-demand balance - If the return on investment for AI falls short of expectations, cloud service providers may cut capital expenditures - The risk of global economic recession could suppress end-user demand 3. Technological Lag and Product Structure Risks Changxin Technologys revenue is still primarily from DDR and LPDDR, even as global DRAM profit pools shift rapidly towards HBM. UBS anticipates that the share of server DRAM for Changxin Technology will increase to 51%, but there are significant barriers to HBM technology that Changxin Technology may struggle to overcome in the short term. 4. Valuation Incorporates Extremely High Expectations Based on UBS's forecast of a net profit of 139.7 billion yuan for 2026, the market capitalization corresponding to the August 7 closing price of 52.48 yuan would be about 3.5 trillion yuan, resulting in a forward-looking price-to-earnings ratio of around 25 times, which is not cheap for a cyclical DRAM company. If calculated with the 2027 net profit of 332.8 billion yuan, the forward-looking price-to-earnings ratio would be about 10.5 times, but there's considerable uncertainty regarding whether this profit level can be sustained. 5. Pressure from Equity Incentives and Lock-up Expiration Prior to the company's IPO, 1.536 billion shares were granted to Chairman Zhu Yiming as incentive shares through the Hefei Jixin platform; the future release could exert pressure on the stock price. 4. Summary and Outlook This UBS report is the most significant coverage of Changxin Technology by an international investment bank since its listing. Its core contributions are: 1. For the first time, it systematically includes Changxin Technology within the global DRAM analytical framework, benchmarking it against global giants such as Samsung, SK Hynix, and Micron, rather than merely viewing it as a "Chinese semiconductor concept stock." 2. It articulates a threefold driving logic centered on "supercycle + domestic substitution + qualitative change in cost structure," providing the market with a cohesive investment narrative for Changxin Technology. 3. It presents clear profit forecasts and timelines, estimating net profits will rise from 139.7 billion to 428.2 billion yuan from 2026 to 2028, with a compound growth rate of 75%, thus anchoring market expectations at an extraordinarily high level. However, this report essentially represents a valuation model under an extremely optimistic scenario. Its core assumptionsthat DDR prices will rise 460% over two years, that gross margins will stay above 80%, that capacity will double, and that domestic substitution orders will be fully realizedmust all hold true to support its profit forecasts. For investors: Short-term: UBSs endorsement may continue to boost market sentiment, but caution is warranted regarding the risks of "good news already priced in." Medium-term: Close monitoring of DRAM price trends, capacity ramp-up progress, and major client order execution is required to validate whether UBS's three core pillars will materialize as forecasted. Long-term: Whether Changxin Technology can truly challenge the "Big Three" as the "global fourth" depends on its capability for technological iteration (especially in HBM) and ongoing improvement in cost competitiveness. The UBS report itself also provides an important frame of thoughtrecognizing the tremendous opportunities presented by the supercycle while also being acutely aware of the uncertainties inherent in extreme assumptions. In the cyclically strong DRAM industry, the pendulum of cycles never remains fixed in one direction. This article is reproduced from "US Stock IPO," edited by GMTEight: Wang Qiujia.