On August 13th after the market close, both Semiconductor Manufacturing International Corp (00981.HK) and Hua Hong Grace Limited (01347.HK) reported their second-quarter results for 2026, both achieving solid performance. However, the stock price movements of these two foundry giants on August 14th showed a significant divergence.
By the close of trading, Semiconductor Manufacturing International's H-shares rose 4.81%, and its A-shares increased 2.65%, while Hua Hong Grace H-shares plummeted 11.55%, and its A-shares fell sharply by 8.57%.
Looking at the performance data itself, Hua Hong Grace's second-quarter results were quite impressive. In Q2, sales revenue reached approximately $718 million, a year-on-year increase of 26.8% and a sequential increase of 8.6%, hitting a record high. The gross margin was 16.5%, up 5.6 percentage points year-on-year and 3.5 percentage points sequentially. Profit attributable to owners of the parent was $38.639 million, surging 385.9% year-on-year and climbing 84.6% sequentially. All three core indicators exceeded the company's previously provided guidance range and have shown sequential improvement for several consecutive quarters.
The growth momentum came from a combination of increased volume and higher prices. Capacity utilization remained at a high level, with growth across all technology platforms. Particularly notable was the performance of independent and embedded non-volatile memory products, as the demand for specialty process chips driven by the AI wave has already materialised in the financial results.
The company also provided guidance for the third quarter of 2026: sales revenue is expected to be approximately $770 million to $780 million, with a gross margin of about 16% to 18%. The midpoint of the revenue guidance implies a sequential growth rate of roughly 8.5%, continuing the upward trend. The midpoint of the gross margin guidance is around 17%, a further increase from the actual 16.5% in Q2. The guidance itself is not poor, but the market's interpretation was cautious. Against the backdrop of a significant prior share price rally, investors' threshold for what constitutes "good enough" has clearly risen.
Looking at the year-to-date trend, Hua Hong Grace H-shares surged over 243% in 2025 and have risen another 75.24% in 2026 (as of the August 14th close). Its share price gain this year has significantly outpaced the Hang Seng Index and the Hang Seng Tech Index, making it one of the strongest performers in the Hong Kong-listed semiconductor sector this year. Tracing the path of the rally, the primary logic for Hua Hong Grace's continued rise this year has been the "Davis Double Play" driven by AI boosting demand for memory and specialty process chips, coupled with the company's quarterly earnings improvement.
While this second-quarter performance confirmed the trend of fundamental improvement, the stock price has soared dramatically over the past year or more. A large number of profit-takers chose to cash out after the results were released, which is likely the direct cause of today's sharp decline. In a horizontal comparison, the contrasting stock price movements of Hua Hong Grace and Semiconductor Manufacturing International suggest the decline was not due to a systemic industry-wide negative factor, but rather profit-taking pressure and valuation digestion specific to Hua Hong Grace.
Additionally, the company disclosed an announcement that executive Zhou Weiping had resigned due to work reasons. Although this is a normal personnel change, it could be magnified by market interpretation at a sensitive high-valuation juncture. It should be noted that since Hua Hong Grace's A-shares and H-shares hit their post-listing highs, both have experienced significant pullbacks, and valuation digestion is underway. Whether the stock stabilises subsequently depends on whether third-quarter results can exceed expectations and whether industry sentiment can spread to a broader range of downstream areas.
It is reported that the application and sponsorship process for the 13th Top 100 Hong Kong Listed Companies selection has started. Hua Hong Grace has specific advantages in the semiconductor wafer foundry track for evaluation. The company is a global leader in specialty process pure-play foundry with a comprehensive 8-inch and 12-inch capacity layout. Driven by AI-driven memory chip demand, its performance has consistently exceeded expectations, with gross margins recovering quarter by quarter and net profit surging year-on-year. This aligns with the assessment dimensions of the Top 100 HK Listed Companies for hard technology and core assets in import substitution, potentially earning it a spot on the shortlist. However, its weaknesses may affect its final ranking. The weaknesses include high valuation after the significant share price surge and short-term profit-taking pressure; a smaller scale compared to leaders like Semiconductor Manufacturing International, limiting its industry influence; uncertainties in the sustainability of demand for specialty process chips despite the AI benefit and a product structure skewed towards mature nodes; and valuation and liquidity differences between the A-share and H-share markets that could impact pricing efficiency. Going forward, continued monitoring is needed on the execution of third-quarter results, the slope of gross margin improvement, and the sustainability of AI-related demand transmission to specialty processes to assess the medium-to-long-term earnings recovery profile.