Everbright Securities International: Maintains Huahong Semiconductor (01347) "Buy" rating; 4Q25 performance in line with guidance

CITIC Securities International reports that, driven by artificial intelligence and storage cycle demand, Huahong Semiconductor (01347) is expected to maintain a high utilization rate and stable to rising prices through 2026. The company’s expansion pace still faces increased depreciation pressure. The forecasted net profit attributable to shareholders for 2026-2027 has been adjusted to $142 million and $195 million (a -7%/+3% change from previous estimates), with an additional forecast of $248 million for 2028, representing year-over-year increases of +158%, +38%, and +27%. The current stock price corresponds to 3.3x and 3.2x PB ratios for 2026 and 2027, respectively. We remain optimistic about the company’s market share growth driven by the trend toward self-control and localization, process technology upgrades, and active capacity expansion supporting long-term revenue growth. The injection of high-quality assets such as Huali Micro Fab 5 further boosts performance and valuation. Maintain a “Buy” rating on Huahong Semiconductor (H).

Key points from CITIC Securities International are as follows:

Event

Q4 2025 results meet company guidance. Revenue for Q4 2025 was $660 million, up 22.4% YoY and 3.9% QoQ, close to the upper limit of the guidance range of $650-660 million, driven by increased wafer shipments and ASP growth, but slightly below the market expectation of $666 million. By wafer size, 8-inch revenue was $253 million, up 0.2% YoY and down 2.3% QoQ; 12-inch revenue was $407 million, up 41.9% YoY and 8.1% QoQ, accounting for 61.7% of total revenue, with an 8.5 percentage point YoY increase. Gross margin in Q4 2025 was 13%, within the company’s guidance of 12-14%, up 1.6 percentage points YoY and down 0.5 percentage points QoQ, driven by ASP increases and cost reductions, partially offset by higher depreciation. Net profit attributable to shareholders was $17.5 million, below the market expectation of $37.4 million. For the full year 2025, revenue reached $2.402 billion, up 19.9% YoY, driven by higher wafer shipments; gross margin was 11.8%, up 1.6 percentage points YoY, supported by ASP increases and cost optimization, partially offset by increased depreciation.

Strong demand in BCD and storage sectors, maintaining high growth; cautious optimism on ASPs in 2026

1. AI-driven growth: In Q4 2025, revenue from analog and power management chips increased 41% YoY. AI data centers are boosting demand for power management chips, and the company is optimistic about BCD maintaining rapid growth. 2) Storage benefits outweigh negatives: Embedded NVM revenue grew 31% YoY, and standalone NVM revenue increased 23% YoY in Q4 2025. Storage supply shortages are causing capacity constraints and demand spillover, with MCU transitioning to higher process nodes, creating opportunities for local-to-local customers. 3) Pricing: The company achieved slight price increases in 2025. It believes there is room for price hikes in 12-inch wafers in 2026, while 8-inch wafers have limited room, possibly leading to structural price increases.

Fab 9 capacity continues to expand, utilization slightly declines, Huali Micro Fab 5 acquisition progressing smoothly

In Q4 2025, utilization was 103.8%, up 0.6 percentage points YoY but down 5.7 percentage points QoQ, reflecting the lag between rapid capacity expansion and equipment/production ramp-up. Full-year 2025 utilization was 106.1%, up 6.6 percentage points YoY. Wafer shipments continued to rise, with Q4 2025 equivalent to 1.448 million 8-inch wafers, up 19.4% YoY and 3.4% QoQ. The total capacity for 8-inch wafers in Q4 2025 reached 486,000 wafers/month, up 3.9% QoQ. Looking ahead: 1) Fab 9 will continue capacity expansion, with 2026 expected to see ongoing expansion and nearing completion; the company guides a YoY decrease in capital expenditure in 2026. 2) Huali Micro Fab 5 acquisition is progressing smoothly, with a capacity of 38,000 12-inch wafers/month. The firm believes that increasing wafer shipments in 2026 will continue to drive revenue growth.

Q1 2026 revenue guidance remains steady, gross margin guidance shows sequential growth

The company guides Q1 2026 revenue of $650-660 million, with a median implying a 21.1% YoY increase and a 0.7% decline QoQ, below the market expectation of $695 million. Gross margin is expected to be 13-15%, with a median indicating a 4.8 percentage point YoY increase and 1 percentage point sequential increase, exceeding the market expectation of 13.2%. Our view: 1) The company will dynamically adjust and balance capacity expansion, price increases, utilization, and profitability. Given the AI wave and storage cycle, downstream demand remains strong, and the “local for local” strategy to serve overseas clients will help maintain high utilization in 2026. Fab 9’s capacity expansion will also support continued rapid revenue growth. 2) Profitability is expected to steadily recover. Despite increased depreciation from Fab 9, the effects of price hikes and scale benefits, along with active cost control, should sustain profit recovery.

Risks: Geopolitical risks; semiconductor cycle downturn; intensified industry competition; delays in technological iteration.