Hua Hong Conference Notes: Strong Specialty-Process Demand, 12-Inch Capacity Expansion Continues

Overview

This report is Goldman Sachs' conference notes on Hua Hong after the Asia Communacopia + Technology conference in Hong Kong. The discussion focused on pricing trends, the sustainability of demand growth, and capacity expansion plans. Management remains constructive on specialty-process semiconductor demand, citing AI trends, tight memory supply, and "China for China" demand as the main drivers.

Core views

The core view is that both demand and capacity expansion at Hua Hong remain favorable. On demand, BCD, Flash memory, and MCU-related products are the strongest, and overall end demand is healthy. On pricing, the company has raised prices for products with strong demand, but it will take time for the impact to reach revenue and gross margin. On supply, the second 12-inch wafer fab continues to ramp, the new 12-inch wafer fab is about to start construction, and the acquisition of mature 40nm/65nm process assets could bring additional capacity.

Analysis framework

The report uses a conference-note and management-interview format, summarizing pricing, capacity, end demand, and valuation framework, and derives the target valuation multiple using the correlation between Goldman Sachs' semiconductor peer P/E ratios and earnings growth.

Methodology notes

• Valuation methodsP/E relative valuation and discounted target price

  Derive a 12-month target price from the 2028E P/E multiple

  Goldman Sachs' HK$152.0 12-month target price for Hua Hong is based on 84.2x 2028E P/E and discounted back to 2026E using a 13.1% cost of equity; the target multiple comes from the relationship between global semiconductor peers' P/E ratios and earnings growth.

• Stock factorsGS Factor Profile

  Comparison across growth, financial returns, valuation multiples, and composite factors

  Goldman Sachs' factor framework compares a stock's growth, financial returns, and valuation multiple against the market and industry peers, and the composite factor is formed from the average of growth, financial return, and the inverse percentile of the valuation multiple.

• M&A scenarioM&A Rank

  Assess M&A factors based on the probability of being acquired

  Goldman Sachs uses an M&A rank from 1 to 3 to measure the probability that a covered company becomes a takeover target, where 1 indicates high probability, 2 medium probability, and 3 low probability; when ranked 1 or 2, M&A factors may be incorporated into the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hua Hong (1347.HK)

  Research coverage

  Strengths

  Strong demand for specialty-process semiconductors, with standout performance in BCD, Flash memory, and MCU platforms; continued 12-inch capacity expansion; potential acquisition of a 40nm/65nm mature-node wafer fab to add capacity.

  Weaknesses

  Consumer demand is relatively weak; the benefit of price increases on revenue and gross margin is lagged; capacity ramp-up still carries execution risk.

  Comparison

  The 84.2x target P/E is above Hua Hong's historical average P/E of 33.0x, reflecting Goldman Sachs' more optimistic assessment of scale expansion and technology migration potential.

  Risks

  End demand weaker than expected, slower-than-expected 12-inch wafer fab ramp, uncertainty in U.S.-China trade relations.

Key data

• Report date2026-05-18The report cover time is 18May2026 4:31PM HKT.
• RatingBuyGoldman Sachs rates Hua Hong as Buy.
• 12-month target priceHK$152.0Based on 84.2x 2028E P/E and discounted to 2026E using a 13.1% COE.
• Disclosed current priceHK$115.90The company-specific disclosure lists Hua Hong's price at HK$115.90.
• Target P/E84.2x 2028E P/EAbove Hua Hong's historical average P/E of 33.0x, reflecting a positive view on scale expansion and technology migration potential.
• Cost of equity13.1%Used to discount the 2028E valuation back to 2026E.
• Strongest demand platformsBCD, Flash memory, MCUManagement said demand is strongest for these technology platforms.
• Main downside risksEnd demand weaker than expected, slower-than-expected 12-inch wafer fab ramp, uncertainty in U.S.-China trade relationsListed in the report's risk section.

Impact & implications

If strong demand and smooth capacity ramp-up continue, Hua Hong's revenue growth, capacity utilization, and gross margin improvement may be supported; however, valuation already reflects fairly positive medium- to long-term expectations for expansion and technology migration, so end demand, 12-inch capacity execution, and geopolitical trade relations are the key variables for share-price realization.

Risks

• End-market demand weaker than expected.
• Slower-than-expected ramp-up of the 12-inch wafer fab.
• Uncertainty in U.S.-China trade relations.
• Consumer electronics end demand is relatively weak.
• It takes time for price increases to flow through to revenue and gross margin.

What to watch

• Whether the final capacity of the second 12-inch wafer fab can complete its ramp-up within the year.
• Whether the new 12-inch wafer fab can start as planned and begin equipment installation by year-end.
• Whether demand for BCD, Flash memory, and MCU-related products remains strong.
• Whether price increases gradually show up in revenue and gross margin.
• Progress on the acquisition of the 40nm/65nm mature-node wafer fab and its post-consolidation capacity contribution.
• The impact of U.S.-China trade relations on the semiconductor supply chain and customer demand.