Depreciation pressure may continue to erode profits. Hua Hong Semiconductor's revenue for 2025-2027 is projected to reach USD 2.40 billion/3.029 billion/3.348 billion, with net profit attributable to shareholders at USD 0.90 billion/1.94 billion/2.63 billion.
According to Zhitong Finance, Guohai Securities issued a research report stating that they are optimistic about Hua Hong Semiconductor (01347) benefiting from the trend of self-controllability and “China-for-China,” which will drive an increase in wafer volume and pricing. The injection of quality assets is expected to improve the company’s profitability and valuation levels, maintaining a “Buy” rating for Hua Hong Semiconductor. The company stated that the Huali Micro acquisition is expected to be officially completed by August 2026, with operations scheduled to begin in 2026. This acquisition holds significant strategic value, potentially adding approximately USD 600-700 million in annual revenue to Hua Hong Semiconductor. Additionally, since the depreciation cycle of the acquired assets has passed, it may positively impact the company’s profitability. Based on prudent principles, the potential dilution effects of this share issuance and the acquisition impact are not considered at this time.
The main viewpoints of Guohai Securities are as follows:
Event:
On November 6, 2025, Hua Hong Semiconductor released its Q3 2025 financial report: In Q3 2025, the company achieved revenue of USD 635 million (QoQ +12.2%, YoY +20.7%); net profit attributable to shareholders was USD 0.26 billion (QoQ +223.5%, YoY -42.6%); quarterly wafer shipments (equivalent to eight-inch wafers) reached 1.4 million units (QoQ +7.3%, YoY +16.7%); capacity utilization rate stood at 109.5% (QoQ +1.2 percentage points, YoY +4.2 percentage points).
Q3 2025 Performance: ASP optimization drives Q3 gross margin above guidance.
Hua Hong Semiconductor began increasing prices for some products starting Q2 2025, and the effect of the price hike gradually took hold in Q3, leading to a 5.2% QoQ increase in ASP. In Q3 2025, the company achieved revenue of USD 635 million (QoQ +12.2%, YoY +20.7%), within the guided range of USD 620-640 million, while Bloomberg consensus estimates projected USD 632 million, with growth primarily driven by increased wafer shipments and higher ASP. Gross margin reached 13.5% (QoQ +2.6 percentage points, YoY +1.3 percentage points), surpassing the guided range of 10%-12%, while Bloomberg consensus estimated 11.3%. Annual growth was mainly due to improved capacity utilization and ASP optimization, partially offset by rising depreciation costs; quarter-on-quarter growth was primarily attributed to ASP improvement. Net profit attributable to shareholders in Q3 2025 was USD 0.26 billion (QoQ +223.5%, YoY -42.6%), with sequential growth largely driven by optimized gross margins and positive foreign exchange gains. Earnings per share (EPS) for shareholders stood at USD 0.015 (QoQ +200.0%, YoY -42.3%), slightly below Bloomberg consensus estimates of USD 0.017. As 55nm NOR Flash and MCU entered mass production, standalone and embedded non-volatile memory revenue grew by 106.6% and 20.4% YoY, respectively, in Q3 2025. Furthermore, driven by strong momentum in power management chips amid the AI wave, analog and power management revenue surged 32.8% YoY in Q3 2025.
Q4 2025 Guidance: ASP and gross margin remain on a positive trajectory.
Hua Hong Semiconductor expects Q4 2025 revenue to reach USD 650-660 million (midpoint QoQ +3.1%, YoY +21.5%), compared to Bloomberg consensus estimates of USD 662 million; gross margin is projected at 12%-14%, exceeding Bloomberg consensus estimates of 11.3%. On the revenue front, collaboration projects with ST, a key client aligned with the “China-for-China” strategy, will start contributing revenue; gradual release of Fab9A capacity is also expected to expand the company’s revenue scale, with BCD revenue likely to continue growing. Regarding gross margin, the company’s price hikes initiated in Q2 2025 will continue to take effect in Q4; additionally, the company will actively invest in high-margin technology platforms to enhance product mix. Thanks to pricing increases and product mix optimization, despite rising depreciation costs associated with new factory ramp-up, Q4 gross margin guidance still exceeded market expectations.
Earnings forecast and investment rating
As some downstream markets continue to recover, new factory capacity comes online, and European customers advance their 'China for China' strategy, the company's revenue may benefit from increased wafer shipments. Additionally, pricing adjustments and product mix improvements could positively impact the company's gross margin to a certain extent. However, depreciation pressures may continue to dilute profits. Huahong Semiconductor's revenue is projected to reach USD 2.40 billion/USD 3.029 billion/USD 3.348 billion for 2025-2027, respectively, with net profit attributable to shareholders at USD 0.90 billion/USD 1.94 billion/USD 2.63 billion, and diluted EPS at USD 0.05/USD 0.11/USD 0.17. The price-to-book (PB) ratio as of November 10, 2025, is estimated at 2.74x/2.66x/2.31x.
Risk Warning: Potential risks include lower-than-expected capacity ramp-up at the new Wuxi plant, slower-than-expected recovery in the semiconductor downstream market, intensified competition among mature process foundries, escalating China-US trade tensions, exchange rate volatility, and industry valuation corrections.
