Optimistic about capacity release + technology transfer, Goldman Sachs raised Hua Hong's target price three times within half a month

On Tuesday, the 30th, the A-share semiconductor industry chain continued to explode, with Hua Hong rising over 17%, and its market value surpassing 200 billion yuan, reaching a new high.

According to news from the Chasing Wind Trading Desk, Goldman Sachs has raised the target price for Hua Hong three times in just half a month and upgraded its rating to "Buy," believing that the company is entering an accelerated growth phase through its strategy of "investing in capacity first, then efficiency."

In a research report on the 29th, Goldman Sachs pointed out that its newly built 12-inch wafer fab (Fab9) is continuously ramping up, while the company plans to acquire another 12-inch fab (Fab5) and aims to enter the 28-nanometer technology node by 2027. Although depreciation and the ramp-up of the new fab may disrupt profits in the short term, this should be viewed as "noise during the capital construction period." In the long run, Hua Hong's path of capacity expansion combined with technological upgrades will bring sustainable growth and profitability recovery.

According to Goldman Sachs' estimates, Hua Hong's revenue is expected to achieve a compound annual growth rate of 18% to 20% between 2026 and 2028, with the gross profit margin centering around 20%.

Capacity Release: New Fab Ramp-Up and Fab5 Acquisition, Clear Scale Expansion

Hua Hong's growth certainty is primarily based on its clear capacity expansion blueprint. According to the company's plan, its new 12-inch fab Fab9 has a designed capacity of 83,000 wafers per month, with current capacity ramping up to about 50%. The management's goal is to achieve full production by mid-2026.

In addition, the 12-inch wafer fab Fab5 that the company plans to acquire has a capacity of 38,000 wafers per month. This move will not only enhance the company's order capacity at the 40/55/65-nanometer process nodes but also effectively reduce internal competition. Looking further ahead, Hua Hong plans to enter the 28-nanometer process through the new fab in 2027, further extending its technology and growth curve.

According to Goldman Sachs' latest forecast, Hua Hong's revenue will reach $3.22 billion in 2026 and increase to $4.58 billion in 2028. The realization of capacity combined with structural transitions will drive revenue growth through both quantity and unit price, forming a positive "invest first, reap later" closed loop.

Technology Migration and Structural Upgrade: 28/40nm Nodes Driving Gross Margin Elasticity

Technological evolution and product structure upgrades are the second main line for Hua Hong to achieve ASP and gross margin recovery. As Fab9 ramps up and the new 28nm node is mass-produced in 2027, the company is gradually migrating from the previous focus on 55/65nm to 40nm and 28nm. The increasing demand for mature processes from emerging sectors such as AI servers and edge intelligent terminals positions Hua Hong as a key supplier domestically.

Goldman Sachs' research report emphasizes that between Q3 2024 and Q2 2025, the company's capacity utilization rate will remain above 100%, initiating a new round of price negotiations with customers. It is expected that from Q3 2025, ASP will return to positive month-on-month growth, driving the gross margin from 9.2% in 2024 to 12.0% by the end of 2025, and approaching 20% by 2028. The scale effects brought about by structural upgrades, coupled with the increased domestic equipment adoption rate, are expected to further dilute unit costs and significantly release profit elasticity

AI-Driven New Growth in Demand

The rapid expansion of the AI industry chain creates lasting incremental space for Hua Hong. The thermal design power (TDP) of AI server GPUs is expected to increase from 700W in 2023 to 1400W in 2025, with the next generation likely to break through 2000W, increasing the demand for power management ICs and power semiconductors. The application of edge AI devices is becoming increasingly widespread, empowering fields such as Bluetooth/WiFi, analog chips, and MCUs, which mainly adopt mature processes.

On the supply side, the third phase of China's integrated circuit industry investment fund has a scale of approximately $47 billion, continuously increasing investments in domestic equipment, deposition/testing, and other links. Hua Hong benefits from the maturity and availability of domestic equipment, shortening the "construction–introduction–mass production" cycle in the industry chain, ensuring the pace of capacity expansion and yield improvement. Under the dual catalysis of AI and localization, Hua Hong's product layout and organizational resilience form a differentiated moat.

Profit Forecast and Valuation Outlook: Growth and Valuation Rise in Sync

Considering the above factors, Goldman Sachs has given a positive forecast for Hua Hong's financial outlook. In its baseline scenario, it is expected that Hua Hong's revenue will reach $3.22 billion in 2026, with a net profit of $267 million; by 2028, revenue is expected to increase to $4.584 billion, with net profit reaching $480 million.

In terms of valuation methodology, the bank uses a model that discounts the expected earnings per share (EPS) for 2028 back to 2026. Based on an EPS of $0.280 for 2028 and a baseline assumption of a 47 times price-to-earnings ratio, the reasonable value range for Hua Hong is estimated to be between HKD 78 and 82 per share. In a more optimistic scenario, its valuation could reach HKD 95 per share. As of the time of writing, Hua Hong Semiconductor's stock price has risen to HKD 80 per share.