Power Semiconductors Welcome a Supply-Driven Price Hike Cycle

Overview

In this Greater China semiconductor industry research report released on June 18, 2026, Morgan Stanley focuses on the power semiconductor field and proposes a core view of a 'supply-driven price hike cycle'. The report points out that after capital expenditure by major global power semiconductor companies had been declining continuously for the past two years, combined with limited capacity expansion of local Chinese enterprises in areas such as IGBT/MOSFET, while industrial demand remains strong, power semiconductor pricing recovered to YoY growth from Q4 2025 and is expected to continue rising in the second half of 2026. The core conclusion of the report is: Overall positive on the power semiconductor price trend, but believes this is a supply-driven cycle (rather than a strong recovery driven by demand), so there are structural divergences on different individual stocks. Specifically, Morgan Stanley maintains an 'Overweight' rating for Yangjie Technology (Yangjie Technology) because it benefits from automotive localization trends and has strong operating efficiency; maintains 'Underweight' ratings for Silan Micro (Silan Micro) and China Resources Microelectronics (CR Micro), believing their stock price gains have already discounted expectations; maintains an 'Equal-weight' rating for StarPower Semiconductor (StarPower), concerned about its depreciation pressure. The report simultaneously raised target prices for these three companies.

Core views

**Demand Side: Structural Divergence, Strong Industry but Weak Auto/Solar** Auto and industrial sectors combined accounted for 72% of total demand for power discrete devices in 2025 (41% for auto, 31% for industry), so the power semiconductor market was less affected by weak consumer electronics and PC replacement demand this year. Industrial demand performance was prominent, with leading industrial automation enterprise income growing 21% YoY in Q1 2026. China electric vehicle wholesale sales (3-month moving average) grew 7% YoY in May, an improvement compared to zero growth in April. However, solar demand remained weak, with new installation volume down 51% YoY YTD. **Supply Side: Capital Expenditure Declining Continuously, Limited New Capacity in Future** Capital expenditure of global leading power discrete device companies has declined for two consecutive years (down YoY in both 2024 and 2025), although an estimated small increase of about 11% is expected in 2026. In China, the report expects limited capacity growth in the power discrete device area (IGBT, MOSFET, etc.) over the next three years, as companies including Silan Micro and UNT (code 688469.SS, NC) have shifted investment focus to AI-related power management chips (PMIC, etc.). Given limited capacity increase and high utilization rates, the report believes that if demand does not deteriorate significantly, the power semiconductor price hike trend can continue to the second half of 2026. **Pricing and Pricing Power: Price Increases Accepted Downstream, Supporting Gross Margin Improvement** Global power discrete device revenue grew 16% YoY in April 2026 (3-month moving average), recovering to positive growth since Q4 2025. In February 2026, many Greater China power discrete device companies issued price hike notices, citing rising raw material costs and increased foundry costs. Apart from IGBTs for automotive customers, distributors and other terminal market clients were willing to accept price hikes due to low inventory and concerns about higher prices in the second half of the year. The report believes pricing power can support gross margins, which are expected to improve gradually throughout the year. **Individual Stock Selection and Valuation: Clear Divergence, Yangjie Technology Favored Most** While the report favors power semiconductor pricing, it explicitly states this is a supply-driven cycle, thus attitudes toward different individual stocks diverge. Maintains Yangjie Technology 'Overweight': Favorable due to increasing share of automotive business in revenue structure, strong operating efficiency, and Vietnam packaging/testing capacity expected to bring growth in overseas customer orders. Report upgrades its 2026/27/28 EPS forecasts by 3%/6%/9%, raises target price from Rmb91 significantly by 50% to Rmb136, implying 33x 2027 expected PE. Maintains Silan Micro and China Resources Microelectronics 'Underweight': Believes valuation is already too high after recent price increases. Silan Micro's current stock price corresponds to 4.8x PB for 2026, far above the 3.3x historical mean over the past three years. Although its IDM model may bring higher operating leverage (bull case target price could reach Rmb61.2), interest expenses and depreciation still drag on earnings. Although benefiting from power semiconductor price hikes and localization trends, CR Micro's investment losses from Chongqing and Shenzhen wafer factories continue to drag on profits. The report simultaneously raised target prices for the above three companies (Yangjie Technology +50%, Silan Micro +35%, CR Micro +20%), but did not change ratings.

Analysis framework

This report adopts a standard 'Industry Fundamental Analysis + Company Valuation Modeling' framework. The core idea is: first judge the industry supply-demand pattern (supply side: capital expenditure trends and capacity plans in global and Chinese regions; demand side: prosperity of major downstream applications—auto, industry, solar, consumer electronics), then derive price trends based on the industry supply-demand gap, update company-level earnings forecasts accordingly, and finally use the Residual Income Model (RIM) to value companies and set target prices. The report uses leading indicators extensively when analyzing industry supply and demand: using WSTS monthly shipment and price data to track industry inflection points, using company capital expenditure plans and capacity expansion guidance to judge supply-side constraints, and using downstream client (such as industrial automation enterprises, EV wholesale data, solar installation volume) revenue and shipment data to characterize the demand side. On the individual stock level, the report unfolds from three dimensions: 1) Product mix and downstream structure (e.g., Yangjie Technology's increasing auto share, higher distribution channel share for Silan Micro makes price increases easier); 2) Capacity expansion plans and operating leverage (Silan Micro's IDM model gives it greater elasticity in bull scenarios); 3) Valuation levels (Silan Micro is relatively high versus historical PB). Valuation for all companies uses the Residual Income Model (RIM), a valuation method based on book value and future residual income. The report adopted a unified assumption framework: risk-free rate 2.0%, equity risk premium 6.0%, beta for each company between 1.04-1.1, terminal growth rate 5.5%, intermediate growth rate between 18%-19%. Additionally, bullish/bearish scenario valuation ranges are provided for each company, using scenario analysis to show upside and downside risks.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Framework: Analyze the mismatch of industry supply (capacity, capital expenditure) and demand (downstream application prosperity) to judge price trends and industry cycles.

  This research report applies the supply-demand framework to reach the core conclusion of 'this is a supply-driven price hike cycle'. The report first analyzes the supply side: global power discrete device company capital expenditure declined for two consecutive years, limited new capacity expansion in China over the next three years; then analyzes the demand side: strong industry, slowing EV, weak solar — demand is not booming comprehensively. Therefore, price increases are more driven by insufficient supply rather than overheated demand. Understanding this framework helps understand why the report shows structural divergence on individual stocks: favorable alpha targets with competitive advantage (Yangjie Technology), but believe beta-dependent targets (Silan Micro, China Resources Microelectronics) stock prices have already discounted expectations.

• Valuation MethodRIM Residual Income Model

  Residual Income Model (Residual Income Model): A valuation method that estimates a company's intrinsic value based on its net asset book value and residual income generated exceeding the cost of capital.

  This report adopts the Residual Income Model to value Yangjie Technology, China Resources Microelectronics, Silan Micro, and StarPower Semiconductor. Simply put, this model believes a company's value equals its current net assets plus the present value of future excess profits created (i.e., income after exceeding the cost of capital). The report sets unified assumption parameters for each company: risk-free rate 2.0%, market risk premium 6.0%, company betas between 1.04-1.1 (measuring individual stock volatility risk relative to the market), terminal growth rate 5.5%. This method is particularly suitable for heavy-asset or high-growth semiconductor companies as it captures long-term value better.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition: Break down revenue growth into volume growth and average selling price changes, respectively analyzing the driving logic of each factor.

  The report adopts the logic of volume-price decomposition when analyzing growth drivers for various companies. For example, for Yangjie Technology, the 'Key Earnings Inputs' table separately gives 'Semi module revenue growth' and 'Semi module ASP growth'. This splitting helps judge the source of growth: ASP fell 8.6% in 2025, while 2026-2028 is expected to turn positive (+3.6%/+4.1%/+4.1%), indicating price hikes are becoming an important driver of revenue growth. Similarly for Silan Micro, 'revenue growth' and 'shipment growth' are given separately for IPM (Intelligent Power Modules), users can estimate unit price movement trends from the difference between the two.

Asset mapping & comparison

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

• Yangjie Technology (300373.SZ)

  Main beneficiary of power semiconductor price hike cycle, business growth strong under automotive localization trend

  Strengths

  Continuing increase in automotive business share; Strong operating efficiency (gross margin expected to stabilize around 36%); Vietnam packaging/testing and foundry capacity expansion expected to bring overseas customer orders; Valuation is attractive

  Weaknesses

  Report did not list weaknesses separately

  Comparison

  Report considers Yangjie Technology to have the best quality among power semiconductor peers, only one rated Overweight

  Risks

  Domestic discrete device market share growth misses expectations; Limited technology upgrade leads to falling behind domestic peers; Global economic recession leads to discrete device shipment decline

• China Resources Microelectronics (688396.SS)

  Key beneficiary of MOSFET localization trend, also benefits from good pricing environment for power semiconductors

  Strengths

  Benefiting from China's MOSFET self-sufficiency rate improvement trend; Leads peers in YMTC outsourced orders

  Weaknesses

  Investment losses from Chongqing and Shenzhen wafer factories continue to drag on earnings; Shenzhen new capacity mainly serves YMTC outsourced wafers, limited new capacity for power semiconductors; Valuation appears too high after price increase

  Comparison

  Compared to Yangjie Technology, China Resources Microelectronics has weaker power semiconductor growth potential and faces greater depreciation and investment loss pressures

  Risks

  China MOSFET self-sufficiency rate lower than expected; Decrease in MOSFET content per EV; Domestic peers apply pricing pressure; Global economic recession leads to demand weakness

• Hangzhou Silan Microelectronics (600460.SS)

  Key beneficiary of China power semiconductor localization trend, but given UW rating due to high expectations

  Strengths

  IDM model (Design + Manufacturing integration) gives it higher operating leverage, larger bull case elasticity; High distribution channel share makes price increases easier; Continuous capacity expansion (8/12 inch)

  Weaknesses

  Current valuation is too high (4.8x 2026 PB vs historical mean 3.3x); Interest expenses and depreciation costs drag on earnings; Even at full production, 2026 operating profit margin expected only around 10%, limited operating leverage

  Comparison

  Compared to peers focusing on design or fab-lite models, Silan Micro's IDM model may bring greater profit elasticity in price hike cycles, but current stock price reflects较多 optimistic expectations

  Risks

  Economic recession leads to demand weakness; Capacity expansion slower than expected; Technology no improvement; Domestic car OEMs limited adoption of its IGBT/SiC modules

Key data

• YoY Growth Rate of Global Power Discrete Device Revenue (April 2026, 3MMA)16%Recovered to positive growth starting from Q4 2025, showing industry prosperity rebounding
• China Industrial Automation Enterprise 2026 Q1 Revenue YoY Growth Rate21%Strong industrial demand, second largest demand source for power semiconductors (31% share)
• China EV Wholesale Sales YoY Growth Rate (May 2026, 3MMA)7%Improved from zero growth in April, but growth remains moderate
• Year-to-Date Change in China Solar New Installations-51%Solar demand remains weak, acting as a drag factor for power semiconductors
• Change in Capital Expenditure of Global Leading Power Semiconductor Companies (2026E)+11%Shows slight rebound after declining for two consecutive years in 2024 (-27%) and 2025 (-29%)
• Yangjie Technology Target Price Increase Amplitude+50%Raised from Rmb91 to Rmb136, implying 33x 2027 expected PE
• Silan Micro Target Price Increase Amplitude+35%Raised from Rmb20 to Rmb26.9, implying 22x 2027 expected PE
• China Resources Microelectronics Target Price Increase Amplitude+20%Raised from Rmb43 to Rmb51.6, implying 29x 2027 expected PE

Impact & implications

The report believes the current power semiconductor price hike cycle is supply-driven, not a strong recovery on the demand side. Therefore, for the industry as a whole, although price hikes favor profitability improvement, investors need to identify sustainable growth capabilities and valuation rationality of different companies. For Yangjie Technology (300373.SZ, OW), the report believes it is the most attractive target: Automotive business share continues to rise (more funds allocated to power devices related to EVs and AI infrastructure), strong operating efficiency, Vietnam capacity expected to bring overseas order growth. The report raised target price by 50%, believing it still has room for expanding market share in the existing market. For Silan Micro (600460.SS, UW), while recognizing it is a key beneficiary of the domestic localization trend of power semiconductors in China, and its operating efficiency (IDM model) gives it large bull case elasticity (up to Rmb61.2), current valuation is already too high (4.8x 2026 PB vs 3.3x historical average), interest expenses and depreciation costs also drag on earnings. For China Resources Microelectronics (688396.SS, UW), the report believes it benefits from China's MOSFET localization trend and favorable pricing environment, but investment losses from Chongqing and Shenzhen wafer factories continue to suppress earnings, and Shenzhen capacity expansion mainly serves YMTC outsourced orders, limited new capacity for power semiconductors. Valuation appears stretched after recent price increases. For StarPower Semiconductor (603290.SS, EW), the report gave a neutral rating due to depreciation concerns.

Risks

• Unexpected downturn on demand side: Solar demand continues to be weak, if EV growth slows further, it may break supply-demand balance
• Global macroeconomic recession: If the global economy enters recession, discrete device shipments will decline, weakening price hike sustainability and company profitability
• Increased local competition in China: Domestic peers may apply more aggressive pricing pressure, limiting price hike magnitude and market share improvement
• Technology upgrade risks: If company technology upgrades miss expectations and fall behind domestic peers, substitution process in high-end markets like automotive may be hindered
• Concentrated release of capital expenditure: If global power semiconductor capital expenditure increases significantly after 2026, new capacity releases may lead to oversupply, reversing the price cycle
• Depreciation and investment loss pressure: Both Silan Micro and China Resources Microelectronics face significant interest expenses, depreciation fees or new wafer factory investment losses, dragging on earnings

What to watch

• YoY month-on-month revenue growth rate of global power discrete devices and 3MMA trend (WSTS data), judging whether it continues to improve
• Growth rate of China EV wholesale sales and changes in solar new installation volume, focusing on evolution of core variables on demand side
• Capital expenditure plans and capacity expansion pace of global leading power semiconductor companies (STM, On Semi, Infineon, Rohm, Vishay)
• Progress of Yangjie Technology Vietnam packaging/testing and foundry capacity ramp-up, and its overseas customer order acquisition situation
• Valuation changes of Silan Micro and China Resources Microelectronics (PB vs historical mean), judging whether they enter a more attractive range
• Depreciation pressure of StarPower Semiconductor and progress of IGBT, SiC application in automotive end