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Charlie ChanEquity AnalystCharlie.Chan@morganstanley.com Daniel Yen, CFAEquity AnalystDaniel.Yen@morganstanley.com On the back of power discrete's cyclical recovery, we think SilanMicro's 19% revenue growth guidance may be achievable.However, a high leverage ratio and depreciation costs continue 1Q26 results on track for 19% full-year growth:1Q26 revenue of Rmb3.52bn rose5% QoQ and 17% YoY, while gross margin of 19.8% was up 3.1ppt from 4Q25 butdown 1.5ppt YoY. We think the results were consistent with the trajectory of the19% sales growth that the company guided for 2026 sales. As the company initiated Awaiting better capital discipline:Silan Micro entered an aggressive capex cycle in2022. This year, it plans to continue to invest mainly in four areas: Silan Jihua 12-inchanalog IC fab (RMB 20bn total investment; Phase 1 targeting 20k wpm by 2030,with initial production in Q4 2027); 8-inch SiC power device line (~RMB 12bn total,targeting 60k wpm post-Phase 2); Chengdu automotive module packaging capacity;and 12-inch power discrete capacity expansion. Due to these projects, Silan Micro'sleverage ratio (total debt to equity) increased from 34% in 1Q25 to 65% in 1Q26, and Morgan Stanley does and seeks to do business withcompanies covered in Morgan Stanley Research. As a result,investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of Morgan StanleyResearch. Investors should consider Morgan Stanley Limited AI exposure: Silan Micro's SiC MOSFET achieved volume shipments in 2025used in power system in AI data centers, but we think revenue exposure is small asmost of its SiC MOSFET is used in EV, solar and energy storage areas. The company For analyst certification and other important disclosures,refer to the Disclosure Section, located at the end of thisreport. Stay UW:Post 1Q26 results, we cut our earnings estimates by 7% for 2026 and 8%for 2027 and introduce 2028 forecasts. The reductions mainly reflect lower marginassumptions amid increasing raw material prices and depreciation costs. Valuation += Analysts employed by non-U.S. affiliates are not registeredwith FINRA, may not be associated persons of the memberand may not be subject to FINRA restrictions oncommunications with a subject company, public appearancesand trading securities held by a research analyst account. Estimate Revisions We lower our earnings estimates by 7% for 2026 and 8% for 2027, and introduce 2028 forecasts:Our estimate cuts reflect lower margin assumptions due to higher raw materialprices and fixed costs as capacity ramps up. We see 2028 sales growth at 13% while gross Valuation methodology Price target unchanged at Rmb20.0:We roll our valuation forward to 2026 from 2025,which offsets our reduced estimates. We continue to derive our price target (base casescenario value) from a residual income model. Our key assumptions are unchanged – weassume an 8.6% cost of equity (beta 1.1, risk-free rate 2.0%, and risk premium 6.0%), a UNDERWEIGHT THESIS Rmb20.00 Base case, residual income model. We believe this methodology best captures the stock'slong-term value. We assume an 8.6% cost of equity (beta 1.1, risk-free rate 2.0% and riskpremium 6.0%), a payout ratio of 5%, a medium-term growth rate of 18.0% and a terminalgrowth rate of 5.5%, all of which are in line with that of other Chinese power semi companies Risk Reward ThemesSelf-help: View descriptions of Risk Rewards Themeshere Rmb36.10BASE CASE BULL CASE 45x 2026e base-case EPS 25x 2026e base-case EPS Stronger sales growth with faster GPMimprovement:We assume: 1) a revenueCAGR of 25% in 2025-28e; 2) gross marginexpands to 30% in 2026-28 from 19% in2025. Chinese auto OEMs adopt SilanMicro's IGBT or SiC module, and inverter-type home appliances penetration rises Slowsales growth with gross margindecline:We assume: 1) a revenue CAGR of5% in 2025-28e; 2) gross margin falls to 15%due to price declines and strong competitionin 2026. Chinese auto OEMs' adoptionof Silan Micro's IGBT SiC module is limited, Modestsales growth withlow GPM:Weexpect: 1) a revenue CAGR of 15% in 2025-28e; 2) gross margin stays at 23% in 2026-28. More Chinese auto OEMs adopt SilanMicro's IGBT and SiC module, and there is a Risk Reward – Hangzhou Silan Microelectronics Co. Ltd. (600460.SS) INVESTMENT DRIVERS RISKS TO PT/RATING RISKS TO UPSIDE 8-inch and 12-inch capacity expansionTechnology improvement in IGBT modules andMOSFETCustomer wins among Chinese auto OEMs Silan Micro – Financial Summary Exhibit 4:Silan Micro – Financial Summary Risk Reward Reference links 1. View explanation of Options Probabilities methodology -Options_Probabilities_Exhibit_Link.pdf2. View descriptions of Risk Rewards Themes - RR_Themes_Exhibit_Link.pdf3. View explanation of regional hierarchies - GEG_Exhibit_Link.pdf4. View explanation of Theme/Exposure methodology -ESG_Sustainable_Solutions_External_Link.pdf5. View explanation of HERS methodology - ESG_HERS_Exter