BOC International: Maintaining Huahong Hongli's (01347) “Buy” Rating Target Price of HK$160

The Zhitong Finance App learned that BOC International released a research report stating that it maintained the “buy” rating of Huahong Hongli (01347) and raised the target price to HK$160, corresponding 5.0 times the 2027 net market ratio. The company's 2Q26 performance fully exceeded expectations, achieving revenue of US$717.5 million, exceeding the guideline upper limit of US$700 million, gross profit margin of 16.5%, and exceeding the guideline limit by 16%. Management said it has obtained regulatory approval for the merger and acquisition of Hualiwei (five factories), or that Hualiwei's performance will begin and be reported in the next quarter, and that the company's overall profit level may be increased; without calculating Hualiwei, management guided 3Q26's revenue of 7.7-780 million US dollars, with a gross profit margin of 16%-18%. The bank raised the company's 2026/27/28 revenue to US$30.0/36.0/US$4.05 billion (previous value of US$28.4/35.1/US$3.96 billion) and raised gross margin to 16.4%/17.4%/18.6% (previous value 15.0%/16.3%/16.9%), believing that Huahong may continue to benefit from increased AI demand.

The main views of BOC International are as follows:

The 2Q26 performance fully exceeded expectations, and Hualiwei's merger and acquisition was approved and announced

In 2Q26, the company achieved revenue of US$717.5 million and a gross profit margin of 16.5%, all exceeding the guideline limit; the bank estimates that the company increased its 12-inch monthly production capacity of 8,400 tablets, mainly due to the expansion of production at the 9A plant. It estimates that ASP (equivalent to 8 inches, same below) increased by about 3% month-on-month. Management said it has obtained regulatory approval for the merger and acquisition of Hualiwei (five factories), or that Hualiwei's performance will begin in the next quarter. The bank believes that Hualiwei's merger or increase the company's overall profit level. Management guidance: Without counting Hualiwei, the 3Q26 revenue was US$77-780 million, with a gross profit margin of 16%-18%.

The upward trend in volume and price continues, and AI demand exacerbates supply constraints

Management mentioned that the increase in AI demand has further exacerbated supply constraints, including strong demand for MCU, NVM memory (embedded/standalone NOR flash), PMIC/BCD products, etc., with orders for some products reaching 1.5-2.0 times production capacity, and pointed out that AI-related demand has risen or squeezed demand for some consumer electronics. The bank believes that part of the 2Q26 performance exceeding expectations was due to the increase in unit prices brought about by high-demand products, and the price increase factors may continue to be released later.

Production capacity expansion accelerates, capital expenditure plans are raised

In terms of production capacity and capital expenditure, management reiterated that Plant 9B will increase production capacity by 55,000 pieces per month, which is in line with the forecast; it also pointed out that the 9B plant's equipment will enter the factory or will begin in 3Q26, earlier than the bank's expectations that 4Q26 will begin entering the factory, and that Plant 9B may start contributing production/revenue in 2027. At the same time, management mentioned that equipment supply is beginning to be tight, and the share of domestic equipment at Plant 9B may increase further; 9B's overall investment is 6 billion US dollars, and the bank believes that investment may be scattered between 2026-28. Considering that the company's capital expenditure of 1H26 has reached US$1.28 billion, the bank adjusted the company's capital expenditure for 2026/27/28 to US$18.0/26.1/2.53 billion (previous value of 17.3/28.0/US$2.70 billion), and fine-tuned the Jiujiu Factory (9A/9B) in Wuxi to increase monthly production capacity (equivalent to 12 inches) to 4.1/3.2/23,000 tablets by the end of 2026-28.