中国代工厂：2025年第四季度模型更新 - 供应收紧

China Foundry: 4Q25 model update - tightening supply SMIC & Hua Hong’s 4Q24 prints are mostly in-line with expectation. SMIC's 4Q24 revenueslightly beat the consensus, GPM & NPM slightly lower than consensus. Hua Hong’s 4Q24revenue & GPM largely inline with consensus & mgmt guidance. Based on our recentchannel check, we updated our SMIC & Hua Hong models with change to the fundamentalsto reflect that. Due to tightening supply and better than expected demand (mobile/PCwill be weak, but rest sectors still strong), we are seeing a potential ASP increase in 2026.Maintain Outperform on both stocks. Qingyuan Lin, Ph.D.+852 2123 2654qingyuan.lin@bernsteinsg.com Zheng Cui+852 2123 2694zheng.cui@bernsteinsg.com Francis Ma+852 2123 2626francis.ma@bernsteinsg.com We maintain PT for Hua Hong H-share at HKD 100 & A-share at CNY 100 , however wehave trimmed our P/B multiple to 3.2x from 4.2x for SMIC to reflect near term weakness,hence revised down our TP for SMIC H-share at HKD 70 (from 100) & A-share at CNY 120(from 150) accordingly. ASP expect to increase due to tighter 8-inch supply and memory CMOS outsourcingcannibalize supply.We anticipate a structural upward trajectory in ASP driven bytightening supply-demand dynamics across mature nodes in China, particularly as 8-inch utilization rates consistently exceed 100%, and memory CMOS outsourcing fromlocal NAND player cannibalizes the matured logic supply. The aggressive expansion ofdomestic AI and memory ecosystems is absorbing a significant portion of mature-nodeoutput, with AI related logic and outsourced CMOS production for major NAND playerseffectively cannibalizing available 12" capacity. Furthermore, as global peers transitionlegacy fabs toward advanced packaging or memory, the resulting supply contractioncreates a favorable pricing environment globally, allowing leading domestic foundries tostructurally raise quotes and eliminate price discounts, potentially securing mid-single-digitASP growth in 2026. Demand is still growing, Chinese foundry still gains shares.While many are concernedthat higher memory pricing will impact consumer electronics demand, the only areaimpacted is mobile and PC, while the rest is still growing. At the same time, demand fromAI, solar, energy storage etc. are still seeing strong growth to offset part of the mobile/PCweakness. Chinese foundries are poised to sustain their market share expansion againstglobal peers, underpinned by the accelerating "China-for-China" localization push bothfrom Chinese and non-Chinese design house. Domestic fabless customers are structurallyallocating a higher proportion of their orders to local foundries, driven by both geopoliticalde-risking and competitive pricing, which has propelled domestic revenue contributions toapproximately 85% for leading players. Margin pressure still exists especially for Hua Hong in 2028 when they start toramp another new fab.Despite robust top-line growth and high utilization, structuralgross margin pressures will persist as a critical risk factor, primarily driven by the heavydepreciation burden associated with aggressive capacity expansion. For Hua Hongspecifically, while the current ramp-up of Fab 9A will reach peak capacity by 2026, theplanned construction of the second phase (Fab 9B) and subsequent new fab additionsslated for 2027 will trigger another massive wave of capital expenditure. Consequently, asthese new facilities commence operations and scale up around 2028, the resulting surge indepreciation costs will severely compress profitability, effectively offsetting the operationalleverage gained from higher ASPs and volume growth. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We rate SMIC Outperform with a Price Target of HKD 70 / CNY 120 for H/A-share. We value SMIC’s H-share at 3.2x NTM P/Bmultiple, based on our estimate of next-four-quarters book value excluding intangible assets and goodwill of USD 2.80 per year.We value SMIC’s A-share with a A-H premium of 1.7x. We rate Hua Hong Outperform with a Price Target of HKD 100 / CNY 140 for H/A-share. We value Hua Hong's H-share at 3.2xNTM P/B multiple, based on our estimate of next-four-quarters book value excluding intangible assets and goodwill of USD4.05. We value Hua Hong's A-share with a 1.5x A-H premium. DETAILS EXHIBIT 1:Chinese mainland foundries have higher utilization rate than Taiwan peers in the recent quarters,despite more aggressive capacity expansion MODEL UPDATE & VALUATION SMIC •SMIC has almost 20% of smartphone exposure, which faces downside risks amid high memory prices. Hence, we revisedown our projection of SMIC’s 2026E revenue and expect recovery from 2027E onward. For GPM, we were optimistic aboutSMIC’s advanced node ramp up but ignored the consumer electronics disruption, now we revise down our projection forGPM as a result of subdued consumer demand. Lastly, we admit that we have low visibility on Net Profit as it is not easy tomodel minority interest for SMIC. EXHIBIT 14:Co