Sealand Securities released a research report expressing optimism about HUA HONG SEMI (01347) amid the trend of localization ("China for China") and self-sufficiency, which is driving both volume and price growth in wafer production. The injection of high-quality assets is expected to improve the company's profitability and valuation, prompting Sealand Securities to maintain a "Buy" rating.

HUA HONG SEMI's acquisition of HLMC is projected to be finalized by August 2026, with operational integration planned to begin the same year. This acquisition holds significant strategic value, potentially adding $600–700 million in annual revenue. Since the acquired assets have passed their depreciation cycle, they may positively impact profitability. For now, Sealand Securities has not factored in potential dilution from the share issuance or acquisition effects.

Key financial highlights from HUA HONG SEMI’s Q3 2025 report (released November 6, 2025) include: - Revenue: $635 million (QoQ +12.2%, YoY +20.7%) - Net profit attributable to shareholders: $26 million (QoQ +223.5%, YoY -42.6%) - Wafer shipments (8-inch equivalent): 1.4 million units (QoQ +7.3%, YoY +16.7%) - Capacity utilization: 109.5% (QoQ +1.2 ppts, YoY +4.2 ppts)

**Q3 Performance: ASP and Gross Margin Exceed Guidance** HUA HONG SEMI implemented price hikes for select products starting Q2 2025, with the effects becoming evident in Q3, driving a 5.2% QoQ increase in average selling price (ASP). Revenue of $635 million surpassed the guidance range of $620–640 million and aligned with Bloomberg consensus estimates ($632 million). Gross margin reached 13.5% (QoQ +2.6 ppts, YoY +1.3 ppts), exceeding the 10%–12% guidance and consensus estimates (11.3%). The YoY improvement was attributed to higher capacity utilization and ASP optimization, partially offset by rising depreciation costs.

Net profit surged QoQ due to margin expansion and favorable forex movements. EPS stood at $0.015 (QoQ +200%, YoY -42.3%), slightly below consensus ($0.017). Strong growth was seen in standalone and embedded non-volatile memory (up 106.6% and 20.4% YoY, respectively), driven by 55nm NOR Flash and MCU mass production. Additionally, power management ICs, buoyed by AI demand, fueled a 32.8% YoY increase in analog and power management revenue.

**Q4 2025 Outlook: Sustained ASP and Margin Strength** The company forecasts Q4 revenue of $650–660 million (midpoint: QoQ +3.1%, YoY +21.5%), compared to Bloomberg consensus of $662 million. Gross margin is guided at 12%–14%, above consensus (11.3%). Revenue growth will be supported by contributions from the "China for China" partnership with ST Microelectronics and expanded capacity at Fab9A. BCD revenue is also expected to rise. Despite higher depreciation from new fab ramp-up, margin resilience is anticipated due to price adjustments and a shift toward higher-margin products.

**Earnings Forecast and Valuation** Sealand Securities projects 2025–2027 revenue of $2.40/$3.03/$3.35 billion and net profit of $90/$194/$263 million, with diluted EPS of $0.05/$0.11/$0.17. As of November 10, 2025, the stock trades at P/B multiples of 2.74x/2.66x/2.31x for 2025–2027.

**Risks**: Slower-than-expected capacity expansion at Wuxi fab; weak semiconductor demand recovery; intensifying competition in mature-node foundry; U.S.-China trade tensions; forex volatility; sector-wide valuation corrections.