Daiwa Capital Markets issued a research report stating that HUA HONG SEMI reported a first-quarter net profit of $21 million, a significant increase of 4.6 times year-over-year, which aligned with the firm's expectations due to a low base effect. The firm reiterated its "Buy" rating.
Gross margin for the first quarter of 2026 remained stable, with expansion anticipated in the second quarter. First-quarter revenue reached $661 million, representing a 22% increase year-over-year and remaining flat sequentially. The annual revenue growth was primarily driven by an 18% year-over-year increase in shipment volume and a 4% rise in average selling price. Sequentially, despite the impact of the Lunar New Year holiday, both shipment volume and average selling price remained stable, indicating robust customer demand.
The gross margin was 13%, up 4 percentage points year-over-year and flat sequentially. Management has provided guidance for the second quarter of 2026, expecting revenue between $690 million and $700 million, representing sequential growth of 4% to 6%, driven by both average selling prices and shipment volume. The gross margin is guided to be in the range of 14% to 16%, higher than the 13% recorded in the first quarter. Both the revenue and gross margin guidance are in line with Daiwa's expectations.
Daiwa noted that there is a significant global shortage of silicon photonics chip supply. It views the company's expansion in this field by leveraging its CMOS and BCD technology advantages as a logical strategic move. Finally, management indicated that the acquisition of Fab5 is expected to be completed in the second half of 2026. Daiwa believes that following the integration of Fab5, there will be more merger and acquisition activities in 2027.
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