BOC International has released a research report stating that Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) is maintaining its mature node capacity, primarily driven by sustained strong demand for specialty platforms (power analog and embedded non-volatile memory eNVM) in mature process technologies. This has led to escalating price increases for 8-inch and 12-inch wafer foundry services, prompting customers to begin exploring 3-5 year long-term supply agreements that include upfront payments and "take-or-pay" clauses to secure already tight 8-inch capacity for next year.
The report highlights that Hua Hong Grace Semiconductor Limited (HKG: 01347) is leading the expansion in mature nodes. Fab 7 and the Wuxi facility are already at full capacity (98k wpm), Fab 9A is expected to reach full production by the end of the third quarter (83k wpm, N40-55), and Fab 9B is slated for full production by the end of 2027 (55k wpm, N28-40). Additionally, with the consolidation of Huali Microelectronics' Fab 5 (38k wpm, N40-65) in the fourth quarter, the annualized revenue run rate is projected to reach $4 billion by the end of 2026, significantly exceeding market expectations. The price increases, which began in April, are expected to deliver substantial margin expansion. BOC International has raised its target price for Hua Hong Grace from HKD 152.4 to HKD 210, maintaining a "Buy" rating.
Regarding Semiconductor Manufacturing International Corporation (SMIC) (HKG: 00981), the bank's view is that its expansion and price increase efforts are relatively more moderate. Expansion is primarily concentrated in Shenzhen and Lingang/Shanghai, and margin expansion will be more cautious due to the need to balance the yield progress of advanced nodes (N+3, equivalent to TSMC's N5/6). BOC International has downgraded its rating for SMIC from "Buy" to "Hold" and lowered its target price from HKD 98.6 to HKD 80.
BOC International's industry ranking is TSMC > Hua Hong Grace > SMIC. Hua Hong Grace receives a higher valuation multiple due to its greater exposure to AI power analog, a better profit expansion trajectory, and the potential value from the asset injection of Huali Microelectronics. In contrast, SMIC has been downgraded to a "Hold" rating due to its more moderate growth trend and the continued pressure on its balance sheet from expansion and mergers and acquisitions.
Comments