Goldman Sachs: Upgrades Hua Hong Semiconductor's target price to HKD 87, benefiting from capacity expansion and policy strengthening of the industrial ecosystem

According to the Zhitong Finance APP, Goldman Sachs has released a research report stating that it has raised the target price for Hua Hong Semiconductor (01347) by 13% to HKD 87, which corresponds to a projected price-to-earnings ratio of 51.5 times for 2028 (up from 45.7 times previously). The forecast for the company's average annual earnings per share growth rate from 2028 to 2029 remains roughly at 31%, reflecting the bank's adjustments based on the latest market correlation regression analysis, while also indicating a continued revaluation of Chinese semiconductor companies. The bank is optimistic about Hua Hong Semiconductor's prospects, as the company is gradually shifting towards 40nm/28nm processes and expanding its production capacity. China is establishing a more complete semiconductor industry chain, with the third phase of the National Integrated Circuit Industry Investment Fund reaching USD 47 billion. With the growing demand from domestic wafer fab customers and the more comprehensive product lines of local equipment companies, the bank believes Hua Hong has sustained upward potential. Goldman Sachs has largely maintained its earnings forecasts for Hua Hong from 2025 to 2027, but has raised its net profit estimates for 2028 and 2029 by 0.2% and 0.6%, respectively, based on a more optimistic view of Hua Hong's long-term growth opportunities. The bank has slightly increased its revenue forecasts for Hua Hong for 2028 to 2029, expecting that China's policies and fund support will drive the robust development of Hua Hong's downstream customers and local equipment suppliers, thereby benefiting the company's revenue and gross margin. The bank has raised its gross margin forecast for Hua Hong in 2029 by 0.1 percentage points, mainly reflecting a slightly optimistic outlook on capacity utilization. The bank's forecasts for Hua Hong's net profit from 2025 to 2029 are RMB 82 million, RMB 267 million, RMB 356 million, RMB 480 million, and RMB 611 million, respectively. The bank noted that the third phase of the National Integrated Circuit Industry Investment Fund will be established in 2024, with an upgraded scale of USD 47 billion, compared to the second phase's scale of USD 29 billion. This fund aims to comprehensively support the development of China's semiconductor industry, covering the entire industry chain from design, manufacturing, materials to equipment. Recently, the third phase fund announced an investment in Piotech Jianke, a subsidiary of Tuojing Technology (688072.SH), which focuses on deposition equipment, bonding equipment, and measurement and testing equipment for 3D integration. This investment demonstrates the mainland's policy support for the semiconductor supply chain, which is conducive to strengthening the development of the entire industry ecosystem