First Shanghai: Volume and price rises sharply, and the target price of maintaining Huahong Hongli's (01347) “buy” rating drops to HK$125

The Zhitong Finance App learned that the first Shanghai released a research report stating that it maintained the “buy” rating of Huahong Hongli (01347) and lowered the target price to HK$125. The bank is optimistic that the company will maintain its high order boom in 2027. Its ASP recovery and high utilization rate will continue to be fulfilled. Hualimicro injection will help reduce costs and increase efficiency in 12-inch production capacity, which is conducive to future revenue and profit center improvements. The company's 2026-28 revenue was adjusted to US$38.2/44.2/5.04 billion, shareholders' net profit was US$36/4.7/610 million, and the target price for the next 12 months was lowered to HK$125, corresponding to the predicted net market ratio of 3.6/3.5 times in 2026/2027. The recent high valuation has been significantly digested (currently the net market ratio corresponding to 2027 is only 2.1x), highlighting the margin of safety.

First, the main views of Shanghai are as follows:

Profits improved dramatically, and Hualiwei combined to increase performance

3Q26 achieved consolidated revenue of US$990 million (YoY +19.9%, month-on-month +9.9%), gross profit margin of 24.6% (YoY +7.6pp, month-on-month +4.7pp), and net profit to mother of US$120 million (+147.1% YoY, +77.7% month-on-month). Hualiwei's injection boosted its performance significantly (contributing 180 million US dollars in incremental revenue this quarter, increasing overall gross margin by 3-4 pp). Excluding Hualiwei's revenue of 800 million US dollars (+12% month-on-month), the gross profit margin was 19.9%, which still exceeded expectations. 4Q26 performance is expected to continue to improve. Overall revenue is expected to be US$10-1.09 billion (approximately +9.9% month-on-month), with a gross margin range of 25-26%. The increase is mainly due to the release of new production capacity at FAB 9A and price increases in the next quarter.

AI-related products are in short supply, and price increases are gradually realized

Some AI-related products remained high this quarter. AI server power supplies, optical module devices, MCUs, Flash and PMICs continued to be in short supply. Among them, embedded non-volatile storage products generated revenue of US$250 million in a single quarter (+42.5% YoY, +25.6% YoY); standalone non-volatile storage revenue of US$150 million in a single quarter (+28.2% YoY, +15.0%); analog and power management revenue of US$200 million (YoY +) 19.5%, +20.5% month-on-month), MOSFET demand recovered steadily; logic and RF revenue of US$190 million in a single quarter (-0.3% YoY, +18.8% month-on-month) was mainly hampered by weak consumer electronics CIS demand, but silicon and 3DDRAM/NAND trends will bring new opportunities for outsourcing. The overall shipment volume for this quarter was 1.911 million tablets (8-inch equivalent, +11.5% year over year), and the capacity utilization rate remained at 102.9% of full load; ASP increased 5.6% month-on-month to $517 per piece. Most of the new Fab 9B production capacity has been booked for 2027, and the operating rate is expected to remain high. The overall average wafer price is expected to maintain a 10-15% increase in 2027.

Risks: Production expansion falls short of expectations, demand falls short of expectations, exchange rate changes.