证券-中国半导体供应链：对中国半导体设备厂商持更为谨慎的看法

More cautious viewon China semisequipment names amid restriction risks Industry Overview 05 November 2024 Semis equipment: higher risks of restriction upgrade We believe that the restrictions on China's semiconductor companies from accessing USand other foreign countries' technologies/products could intensify further. Currently, theChinese semiconductor companies are restricted from building 14nm or below logicchips, 18nm or below DRAM chips, 128-layer or above NAND flash, etc. There have beenseveral major chipmakers, such as SMIC, Pengxinwei (PXW), YMTC, that have been addedto the Entity List. We estimate that further tightened controls, such as new additions tothe Entity List and expanding to equipment export restrictions to more mature nodes orother cutting-edge areas like HBM, could be possible after the US election. Our checkacross China semiconductor fabs' expansion plans indicate that the wafer capacityconstruction in 2025-26 will mainly focus on 28-90nm processes (for logic, analog, etc)and memory (DRAM and NAND), see Exhibit 2 and 3. That is to say, we believe the Chinadomestic semiconductor supply chain's localization effort will remain intact in the longrun but the local fabs' wafer capacity building could potentially be disrupted by therestrictionescalationinthemid/short-term,adownsideriskto the semiconductorequipment demand in China - we have already forecasted normalized WFE spendings inChina of Uss33bn p.a. in 2025/26, normalized vs 2024 high of Uss38bn. EquityChinaSemiconductors Dai Shen >>Research AnalystMerill Lynch (Hong Kong)+85235087310 Simon Woo, CFA >>ResearchAnalystMerrill Lynch (Seoul)simon.woo@bofa.com Buy for Will Semi, U/P for Hwatsing, HuaHong, Kingsemi Today we lowered our sales/profit estimates for the China semiconductor equipmentmakers, Hwatsing Tech (688120 CH, CMP equipment) and Kingsemi (688037 CH,photoresist coating/developing equipment), given such demand uncertainties in2025/26. We downgraded both stocks to Underperform. Hua Hong:foundry pricing weaknesslikely to remain processes (mainly 55nm and larger nodes). Its exposure to the overseas market hasalready been limited -less than 20% in 2Q24 (c.10% from N. America, 4% from Europe)vs 40%+ prior to 2020. We view a potential slowdown of the mature technology chipmanufacturing capacity expansion in China could help mitigate the price competitionpressure on China foundry players, such as Hua Hong. However, it should not lead to animmediate foundry service pricing recovery, ie in 2H24/1H25, capped by the highinventory levels among fabless companies. We maintain Underperform on Hua Hong. Will Semi: Growth theme immune to restrictions Our Buy rating for Will Semiconductor (603501 CH) is mainly due to the optimistic viewover its sales growth potential in the smartphone CMOS image sensor (CIS) market. Itssmartphone CiS chips (accounting for 40% of the total sales in 1H24) are built onrelatively mature nodes (>2Onm), and mainly supplied to China smartphone OEMs(Huawei/Xiaomi/ OPPO/vivo, etc), which have almost nil presence in the US market.Other businesses (chip distribution, etc) mainly serve China domestic customers. Thus,we believe Will Semi's sales growth is unlikely to be affected by the restrictions. Exhibit 5: China annual WFE spending and YoY 2025/26 WFE demand to normalize but still US$30bn+ but down from 2024peak of near USS40bn Fabs focusing on expanding sub-9Onm processes including memory Exhibit 6: Numbers of semiconductor equipment tendered by China chipmakers by month <50 machines tendered in Jul/Aug 2024; Sep/Oct tenders mostly by Chongqing Xinlian and CRRC Times Electric, others' demand still weak Capacity expansion since 2020 focusing on 12" Source: Company, BofA Global Research Dominated by Apple/Samsung; others include Google, Motorola, etc; almostnil market shares by China OEMs Near 40% sales generated by smartphone CIS A-share semis stocks up c.50% since late-Sept along with the market Average P/E back to 35x vs 2022-24 average about 35x1609 Average P/E derived based on themarket capsand net profit consensuses of NAURA,AMEC,ACMRsch, Piotech, Hwatsing, Kingsemi, Wanye, and PNCSource: Bloomberg, BofA Global Research Source: Wind BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH Stocks mentioned Prices and ratings for stocks mentioned in this report Priceobjectivebasis&risk Hua Hong Semi (HHUSF) Our PO of HK$12 is based on 0.4x our 2025E P/B, which is below the low-end of itsto 1H25, and 2) loW-single-digit % ROE in 2025E. Upside risks to our PO are: 1) stronger-than-expected wafer pricing, and 2) lower-than-expected impact from rising depreciation expenses. Downside risks to our PO are: 1) keener competition from domestic IDM competitors likeASMC and CSMC, and 2) softer-than-expected end-demand on macro/trade issues. Hwatsing Technology (XSNIF) Our PO of CNY162 is based on 35x 2025 EPS of CNY4.6. The 35x P/E is at the lower-end of the company's 2022-23 historical valuation range t