二季度利润率超出预期，D/G评级为持有，因近期股价大幅上涨

2Qmargin beat,D/G to HOLDdueto substantialrecentshare price gains Target PriceHK$48.00(Previous TPHK$37.50)Up/Downside9.1%Current PriceHK$44.00 Hua HongSemireleased its2Q25 earnings. RevenuewasRMB566mn, up18.3%/4.6%YoY/QoQ,driven by increased wafer shipments(18.0%/6.0%YoY/QoQ). Theresults werein linewith guidanceandBloombergconsensus.GPMimproved 1.6pptssequentially to 10.9%,beatingguidance (7%-9%) andconsensus (8.3%). NPMroseto 1.6% from 0.7% in 1Q25on better GPM andincreased other gains (subsidies etc.).Utilization rateclimbed to108.3%(up5.6ppts/10.4pptsfrom 1Q25/2Q24), a recordhighduring the past 11quarters,driven by demand recovery and operational improvements. Blended ASP wasUS$434, +0.2%/-1.3% YoY/QoQ. Mgmt. believesASPwill stabilize, particularlyonthe 12-inch products.Meanwhile,mgmt.guides 3Q25 revenue to beUS$620mn-640mn.The mid-point of guidance represents 19.7%/11.3%YoY/QoQ,showingaccelerated growth from 2Q, a normal seasonal trend.Theoutlook ofGPMin 3Q/4Qis flattishat a range of 10%-12%,similar to 2Q level,dueto depreciation headwinds. Overall, 2Q is a decent quarter,andwe think thestock is fairly valuedat this level.Downgrade toHOLD,with TP adjusted toHK$48. China Semiconductors Lily YANG, Ph.D(852) 3916 3716lilyyang@cmbi.com.hk Jiahao Jiang(852) 39163739JiangJiahao@cmbi.com.hk Kevin ZHANG(852) 3761 8727kevinzhang@cmbi.com.hk Weforecast20% YoY revenue growthin2025E, driven by capacityexpansion,high utilization and ASP stabilization.We expect total salesto increase to RMB2.4bn this year, with sequential growth of 11.4%/7.2% in3Q/4Q25.Wafer shipmentis expected togrowby16.2% in 2025E, driven bycapacity expansion. 50% of Fab9’s capacity isup and running, whilemgmt.expectsfullexpansion tobe completedby mid-2026.Blended ASP almoststabilized at the currentlevel forfourquarters (within +/-1.5% movementssequentially),with price adjustments implemented in 2Q. We expect a single-digit ASP increase in 2H25. Stock Data Despite aGPMbeat in 2Q,depreciation headwinds persist.Hua Hong’scapacity expansionschedule remains on track, while ongoing depreciationexpense continuesto weigh on margins this year. D&A expenses rose toRMB352mn in 1H25 (vs. RMB270mn in 1H24), a 30% YoY increase.Weexpect D&A to be ~RMB750mn this year, as Fab9 rampsup. GPM is guidedto be 10%-12%by mgmt.,in linewith2Q’s 10.9%, a mixed impact of ongoinghighutilization rate,improving operational efficiency and depreciationpressure. We project GPMof10.9%/14.7% in 2025/26E. Downgrade to HOLD, with new TPofHK$48.The newTP is based on1.7x2025E P/B, 0.5SD above 5-year avg. historical forward (vs. previous1.4x),reflecting ASP stabilization and the business bottomingoutfromthecyclical downturn.While we remain positive on Hua Hong’s role in China’ssemiconductor localization theme, the stock has risen over 50% in the pasttwo months and we see valuations as fair at current levels.Potential upsidecatalysts:stronger-than-expecteddemandrecovery,greater-than-anticipated ASP increase, etc.Downside risks:weaker demand, ASPpressure, geopoliticaltension, etc. Source: FactSet Source: Company data, CMBIGM estimates Source: Company data, CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of theviews expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 months: Stock with potential return of +15% to-10% over next 12 months: Stock with potential loss of over 10% over next 12 months: Stock is not rated byCMBIGM HOLDNOT RATED SELL :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months CMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB Int