Goldman Sachs: Hua Hong Grace Semiconductor (01347) Embraces AI Chip Opportunities, Acquisition of Huali Microelectronics Expands Technology Nodes, Reiterates "Buy" Rating

Goldman Sachs has issued a research report maintaining a "Buy" rating on Hua Hong Grace Semiconductor (01347) H-shares with a 12-month target price of HK$335. The bank holds a positive view on the company, expecting revenue growth of 11% and 15% quarter-on-quarter in Q3 and Q4 2026, respectively, higher than the 9% quarter-on-quarter growth in Q2 2026, primarily driven by China's AI spending and customers' "buy local" strategy to better secure supply. The bank noted in an earlier report that it expects China's semiconductor capital expenditure to grow 13%, 15%, and 15% in 2026, 2027, and 2028, respectively, driven by memory and advanced node capacity expansion; and estimates that the potential market size of China's AI chips will achieve a compound annual growth rate of 142%, 69%, and 6% under bull, base, and bear scenarios, respectively, from 2025 to 2030, reaching US$4.12 trillion, US$678 billion, and US$66 billion by 2030, reflecting the opportunities facing Hua Hong. The bank noted that Hua Hong continues to expand capacity, with capacity utilization maintained at high levels, driven by strong demand and technology node migration. Generative AI remains the primary driver, boosting demand for embedded flash, NOR flash, and power management ICs. Hua Hong completed the acquisition of a 97.5% stake in Huali Microelectronics in September, after which Huali Microelectronics became a wholly-owned subsidiary and will be consolidated into the group's financial statements. The bank expects this acquisition to broaden Hua Hong's 12-inch manufacturing platform and support its long-term capacity and technology node expansion. The bank expects strong demand to support capacity utilization, average selling prices, and gross margins. The company aims to add approximately 40% of 12-inch wafer capacity for Fab9A by the end of Q3 2026 and reach full capacity in the first half of 2027.