Guo Hai Securities has issued a research report maintaining a "Buy" rating on Hua Hong Semiconductor (01347). The report expresses optimism regarding the company's prospects for simultaneous growth in wafer volume and pricing, driven by trends toward self-sufficiency and the "China for China" strategy. The injection of high-quality assets is expected to enhance the company's profitability and valuation.

With the ramp-up of production capacity at new facilities and the advancement of the "China for China" strategy among European and American clients, the company's revenue is anticipated to benefit from increased wafer shipments. Furthermore, pricing adjustments and improvements in product mix are projected to have a positive impact on gross margins. However, depreciation pressures may continue to dilute profits. Guo Hai Securities forecasts Hua Hong Semiconductor's revenue for 2026-2028 to reach $2.973 billion, $3.402 billion, and $3.783 billion, respectively. Net profit attributable to shareholders is projected at $134 million, $149 million, and $202 million, with diluted EPS at $0.08, $0.10, and $0.11, respectively.

The primary viewpoints from Guo Hai Securities are as follows:

**Q4 2025 Results: Broadly in Line with Market Expectations, Strong Momentum in Flash Memory & Power Management Chips** On February 12, 2026, Hua Hong Semiconductor released its Q4 2025 financial results. The company reported Q4 revenue of $660 million, representing a quarter-over-quarter increase of 3.9% and a year-over-year increase of 22.4%. Net profit attributable to shareholders was $17 million, a decrease of 32.2% quarter-over-quarter, compared to a net loss of $25 million in the same period of 2025. Quarterly wafer shipments reached 1.45 million 8-inch equivalent wafers, up 3.4% quarter-over-quarter and 19.4% year-over-year. Capacity utilization stood at 103.8%, down 5.7 percentage points from the previous quarter but up 0.6 percentage points year-over-year.

Revenue for the quarter was within the company's guidance range of $650-$660 million and roughly aligned with the consensus estimate of $666 million. The annual growth was primarily attributed to increased wafer shipments and a higher Average Selling Price. The gross margin was 13.0%, down 0.5 percentage points quarter-over-quarter but up 1.6 percentage points year-over-year. This was within the guided range of 12%-14% and close to the consensus estimate of 13.4%. The yearly improvement was due to ASP optimization and cost-reduction efforts, while the quarterly decline was mainly due to increased labor costs.

The sequential decrease in net profit was primarily a result of higher labor expenses. Earnings per share attributable to ordinary shareholders was $0.010, down 33.3% quarter-over-quarter and 166.7% year-over-year, compared to a consensus estimate of $0.022.

Driven by increased demand for MCU and smart card chips, revenue from embedded non-volatile memory grew 31.3% year-over-year. Revenue from discrete non-volatile memory increased 22.9% annually, fueled by demand for flash memory products. Additionally, strong performance in power management chips propelled a 40.7% year-over-year increase in analog and power management revenue for Q4 2025.

**Q1 2026 Guidance: Revenue Outlook Below Market Expectations, Potential for 12-Inch Product Price Hikes in 2026** Hua Hong Semiconductor expects Q1 2026 revenue to be between $650 million and $660 million, with the midpoint implying a slight sequential decrease of 0.7% but a year-over-year increase of 21.1%. This guidance falls below the consensus estimate of $695 million. The projected gross margin is 13%-15%, compared to a consensus expectation of 13.2%.

Driven by the AI wave, the company's power management platform is expected to continue its rapid growth. Furthermore, there remains potential for price increases on the company's 12-inch products in 2026. Equipment move-in for the Fab 9B facility is anticipated to begin in October 2026. A significant overall increase in production capacity is projected for the company in 2027.

**Risk Factors** Potential risks include slower-than-expected capacity ramp-up at the new Wuxi facility; a weaker-than-anticipated recovery in the downstream semiconductor market; intensifying competition among mature-node wafer foundries; escalating Sino-US trade friction; foreign exchange volatility; and a potential correction in industry valuations.