Goldman Sachs has reiterated its "Buy" rating on HUA HONG GRACE (01347) H-shares, setting a 12-month target price of HK$335. The bank holds a positive outlook on the company, projecting sequential revenue growth of 11% and 15% for the third and fourth quarters of 2026, respectively. This outpaces the 9% quarter-on-quarter increase expected in the second quarter of 2026, driven by China's AI spending and clients' "buy local first" strategy aimed at securing more reliable supply chains.
In a previous report, Goldman Sachs forecasted China's semiconductor capital expenditures to expand by 13%, 15%, and 15% in 2026, 2027, and 2028, respectively, fueled by capacity additions in memory and advanced nodes. The bank estimates that the potential Chinese AI chip market will achieve compound annual growth rates of 142%, 69%, and 6% from 2025 to 2030 under bull, base, and bear scenarios. By 2030, the market size could reach US$4.12 trillion, US$678 billion, and US$66 billion under these respective scenarios, underlining the opportunities for the company.
The bank notes that Hua Hong Grace continues to expand its capacity while maintaining high utilization rates, supported by strong demand and technology node migration. Generative AI remains a primary growth catalyst, boosting demand for embedded flash memory, NOR flash, and power management ICs. In September, the company completed the acquisition of a 97.5% stake in WuLi Micro, which subsequently became a wholly-owned subsidiary and has been consolidated into the group's financial statements. Goldman Sachs expects this acquisition to broaden Hua Hong Grace's 12-inch manufacturing platform and support its long-term capacity and technology node expansion.
The bank anticipates that robust demand will sustain capacity utilization, average selling prices, and gross margins. The company aims to add approximately 40% more 12-inch wafer capacity to Fab9A by the end of the third quarter of 2026, with a target to reach full capacity by the first half of 2027.
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