Bank of China International: Sublimated the target price of Hongli (01347) to HK$210 and downgraded the rating of SMIC (00981) to “hold”

The Zhitong Finance App learned that Bank of China International released a research report saying that TSM.US has maintained the production capacity scale of mature nodes, mainly due to continued strong demand for mature processes from special platforms (power simulation and embedded non-volatile memory eVM), and the rise in 8-inch and 12-inch foundry prices has intensified. Customers have begun to discuss long-term supply agreements for 3 to 5 years with prepayment and “pay as is correct” clauses to lock in 8-inch production capacity, which is already tightening next year.

According to the report, Huahong Hongli (01347) is leading the way in expanding production at mature nodes. Fab 7 and the Wuxi plant have reached full production (98k wpm), the Fab 9A will be produced by the end of the third quarter (83k WPM/n40-55), and the Fab 9B will be produced by the end of 2027 (55k WPM/n28-40), which combined with the fourth quarter and represents Hualiwei's Fab 5 (38k Wpm/N40-65), which is significantly higher than market expectations; The rise began in April and will bring Significant profit margin elasticity. The bank raised Huahong's target price from HK$152.4 to HK$210, maintaining a “buy” rating.

On the side of SMIC (00981), the bank believes that its expansion of production and price increases are relatively moderate. The expansion of production is mainly concentrated in Shenzhen and Lingang/Shanghai, and that profit margin expansion will be more cautious, due to the need to balance the yield progress of advanced nodes (N+3, equivalent to TSMC N5/6). The bank downgraded the SMIC rating from “buy” to “hold”, and the target price was lowered from HK$98.6 to HK$80.

Bank of China International ranked the industry as TSMC > Huahong Hongli > SMIC. Huahong received a higher valuation multiple due to its higher exposure in the field of AI power simulation, better profit expansion trajectory, and the potential value of Huali's micro asset injection; SMIC downgraded it to a “holding” rating due to moderate growth trends and continuous increases in production expansion and mergers and acquisitions.