Global DRAM Supercycle Combined with Domestic Substitution Creates a Window for CXMT to Achieve Both Volume and Price Growth

Overview

CXMT is China's largest and technologically leading integrated DRAM manufacturer, with R&D, design, and production capabilities. UBS believes the company is a key beneficiary of the global memory supercycle and China's DRAM localization trend. Price increases driven by tight global supply, domestic capacity expansion, growth in server and AI infrastructure memory demand, and progress in HBM products are expected to jointly drive rapid growth in revenue, earnings, and market share.

Core views

The core logic includes three points: first, AI server demand, growth in memory capacity per server, and constraints on capacity expansion will keep global DRAM supply short of demand at least until the second quarter of 2028; second, the company is expanding shipments through capacity construction in Hefei, Beijing, and Shanghai and process upgrades, with its global bit supply share expected to rise from approximately 7% in 2025 to approximately 10% in 2028; third, Chinese cloud service providers and end customers are strengthening domestic procurement, and together with progress in HBM3/3E mass production, this will make the server and data center business a new growth core. UBS expects the company's revenue to rise from Rmb61.8bn in 2025 to approximately Rmb860bn in 2028, with EBIT margins maintained at 75%–85% in 2026–2028.

Analysis framework

The report is structured around key questions and builds earnings forecasts by combining global DRAM supply-demand and price forecasts, wafer capacity and process migration, bit shipments, product and customer mix, domestic substitution policies, and industry-chain research. It determines the target price and risk-reward through P/BV and ROE matching, peer comparison, and upside/downside scenario analysis.

Methodology notes

• Industry analysisSupply-demand cycle analysis

  Assess the duration of the DRAM cycle through demand growth, capacity constraints, and price changes.

  UBS combines AI server demand, growth in memory content, fab space, equipment delivery cycles, and installation capacity to judge that global DRAM supply will remain short of demand at least until the second quarter of 2028.

• Company forecastingBottom-up earnings forecast

  Derive revenue and profit from capacity, utilization, process technology, yield, bit shipments, and average selling price.

  The report forecasts effective shipments based on each wafer fab's ramp-up schedule, process upgrades, and yield losses, then calculates revenue, gross margin, and EBIT margin in combination with DRAM prices, product mix, and operating leverage.

• Valuation analysisP/BV-ROE relative valuation

  Determine reasonable P/BV based on sustainable ROE and cost of equity, and compare it with peers.

  The target price uses 8.6x 2027 P/BV, corresponding to an average ROE of approximately 37% in 2028–2030 and a cost of equity of 8.5%; this multiple represents an approximately 40% premium to the 2027 average of 6.1x P/BV for major domestic wafer foundry peers.

• Risk analysisScenario analysis

  Assess upside and downside by changing industry growth, DRAM ASP, gross margin, R&D expense ratio, and valuation multiple.

  The report presents upside, base, and downside scenarios of Rmb166.10, Rmb70.00, and Rmb4.00, and estimates the current share price's upside-to-downside risk-reward at approximately 2.4 to 1.

Asset mapping & comparison

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

• CXMT (688825.SS)

  The report directly covers this target, which is also a core beneficiary of the global DRAM upcycle and China's domestic substitution in memory.

  Strengths

  China's largest and technologically leading integrated DRAM manufacturer, with R&D, design, and manufacturing capabilities; it has an aggressive expansion plan, a growing domestic customer base, and has already advanced HBM3/3E mass production.

  Weaknesses

  Its process nodes lag behind the global top three DRAM suppliers, and it cannot obtain EUV lithography equipment, making advanced process migration, yield improvement, and equipment maintenance more difficult.

  Comparison

  The company is expected to trade at approximately 6.4x 2027 P/BV, corresponding to an ROE of approximately 83%; A-share wafer foundry peers average approximately 6x P/BV but have ROE of approximately 4%, while profitability of China memory-related companies is also significantly lower.

  Risks

  DRAM prices below expectations, capacity expansion or yield ramp-up falling short of expectations, tighter export controls, delays in HBM technology and customer validation, and a slowdown in AI capital expenditure.

Key data

• Rating and target priceBuy; Rmb70.00Reference share price of Rmb51.96, implying upside of approximately 34.7%.
• Revenue forecastFrom Rmb61.8bn in 2025 to approximately Rmb860bn in 2028Corresponding to a CAGR of approximately 141% in 2025–2028; expected to decline from 2029 as DRAM prices normalize.
• Earnings forecastRmb140bn, Rmb333bn, and Rmb428bn in 2026–2028On average approximately 19% above Wind consensus expectations, corresponding to a CAGR of approximately 75% in 2026–2028.
• EBIT margin75%, 85%, and 85% in 2026–2028Mainly driven by rising DRAM prices, a higher share of server products, and improved operating leverage; expected to fall back to 74% and 68% in 2029–2030.
• Year-end DRAM capacityFrom 240,000 wafers per month in 2025 to 466,000 wafers per month in 2028Designed capacity is expected to increase by 52,000, 90,000, and 85,000 wafers per month in 2026–2028, respectively.
• DRAM bit shipments40% CAGR in 2025–2028Expected to account for approximately 10% of global industry bit supply in 2028, up from approximately 7% in 2025.
• Data center businessRevenue CAGR of 208% in 2025–2028Expected to contribute 54% of total revenue in 2028, up 28 percentage points from 2025.
• China server and HBM market shareApproximately 20% in 2028Up approximately 7 percentage points from approximately 12% in 2025.
• HBM shipment share2% in 2028, 7% in 2030The company is advancing HBM3/3E mass production, but technology, yield, and customer validation progress remain key variables.
• Valuation basis8.6x 2027 P/BVBased on average ROE of approximately 37% in 2028–2030 and a cost of equity of 8.5%.

Impact & implications

If global DRAM shortages and domestic substitution progress as expected, CXMT will benefit from threefold improvements in pricing, volume, and product mix, and may become a scarce pure-play high-profitability memory target among A-shares. Expansion in server memory and HBM businesses will also increase the company's sensitivity to AI infrastructure investment. However, high margins are highly dependent on cyclical pricing and capacity execution; after 2029, supply catch-up and price normalization may lead to declines in revenue and margins.

Risks

• DRAM is clearly cyclical; if global supply recovers faster than expected, prices may peak earlier and pressure revenue and margins.
• U.S. export restrictions on EUV lithography and key semiconductor equipment may hinder advanced process migration and increase the difficulty of multiple patterning, yield, and equipment maintenance.
• New wafer fabs, equipment installation, engineer staffing, and capacity ramp-up may fall short of expectations, resulting in shipments below forecasts.
• There are execution risks in HBM3/3E mass production, yield improvement, and server customer certification, and product mix upgrades may be delayed.
• Elevated memory prices may weaken customer affordability; if hyperscale cloud service providers face pressure on financing or operating cash flow, they may cut AI and server capital expenditure.
• Rising customer concentration or execution of long-term procurement agreements falling short of expectations may affect data center business growth.
• The report's forecast EBIT margins of 75%–85% are significantly higher than historical industry levels and are relatively sensitive to assumptions on prices, product mix, and operating leverage.
• After 2029, DRAM price normalization and industry supply catch-up may cause the company's revenue and margins to fall from cyclical highs.

What to watch

• Whether the global DRAM supply-demand gap and shortage can persist until the second quarter of 2028.
• DDR and HBM contract prices, long-term agreement coverage, and changes in customer procurement volumes.
• Construction, equipment arrival, production start-up, and yield ramp-up progress at the Hefei, Beijing, and Shanghai wafer fabs.
• G4/G5 process migration, bit output per wafer, and the impact of export controls on production efficiency.
• HBM3/3E mass production, adaptation to domestic AI accelerators, and certification progress with major cloud service providers.
• Orders and execution of long-term procurement agreements from data center customers such as ByteDance, Tencent, and Alibaba.
• Whether the data center revenue share can rise to 54% in 2028, and whether the China server and HBM market share can reach approximately 20%.
• The extent of DRAM price normalization after 2029 and the company's ability to protect margins on the downside.