--- title: "Citi Raises SMIC and HUA HONG GRACE TP and EPS Forecasts; 2Q Results Beat Expectations, Positive Guidance for This Quarter" type: "News" locale: "en" url: "https://longbridge.com/en/news/296083821.md" description: "Citi raised target prices and EPS forecasts for SMIC and Hua Hong Grace, citing strong Q2 results and positive Q3 guidance. Both companies exceeded expectations, driven by recovering capacity utilization and rising prices in mature-node foundries, supported by AI demand spillovers. Citi upgraded SMIC's TP to HKD100 and Hua Hong Grace's to HKD175, maintaining Buy ratings as the industry recovery becomes structural." datetime: "2026-08-17T09:26:42.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296083821.md) - [en](https://longbridge.com/en/news/296083821.md) - [zh-HK](https://longbridge.com/zh-HK/news/296083821.md) generator: "portal-rs" --- # Citi Raises SMIC and HUA HONG GRACE TP and EPS Forecasts; 2Q Results Beat Expectations, Positive Guidance for This Quarter Citi released a report stating that the latest 2Q results of SMIC (00981.HK) +4.350 (+6.144%) Short selling $512.00M; Ratio 4.987% and HUA HONG GRACE (01347.HK) +9.700 (+7.450%) Short selling $393.30M; Ratio 6.873% showed an increasingly clear recovery in the mature-node/specialty foundry sector. Capacity utilization recovery, rising pricing trends and tightening capacity cycles, together with AI creating direct demand for PMIC/MCU/power devices and indirect "capacity spillover" effects on mature nodes, are supporting the industry. The broker believed both companies had started negotiating price hikes for supply-constrained products, especially 8-inch wafers and AI-related products, since 1Q26. HUA HONG GRACE also mentioned that high fab loading had led to longer lead times, particularly in BCD/PMIC, MCU, flash memory and power process technologies. This has created a healthier environment for the industry outlook. Citi said both SMIC and HUA HONG GRACE delivered better-than-expected 2Q results, confirming that the recovery in China's wafer foundry industry has expanded from AI accelerators to mature nodes and specialty products. SMIC reported revenue of USD3 billion, up 20% QoQ and 36% YoY, while gross margin rose from 20.1% to 25.3%, far above previous guidance of 20%-22%. Capacity utilization also increased to 93.7%. HUA HONG GRACE recorded a record revenue of USD718 million, up 9% QoQ and 27% YoY, while gross margin rose to 16.5%, benefiting from improved shipment volume and average selling prices. HUA HONG GRACE's strong growth was driven by embedded non-volatile memory/MCU, up 42% YoY, discrete non-volatile memory/flash memory, up 149% YoY, logic/RF, up 21% YoY, and analog/PMIC, up 13% YoY. The common message was that the recovery in sales volume is now being reinforced by stronger pricing, creating significant operating leverage despite higher depreciation from new capacity additions. Citi stated that the 3Q outlook for both companies is positive, with both expecting momentum to continue into 3Q. SMIC guided for revenue growth of 2%-4% QoQ and gross margin of 26%-28%. Management believed the industrial "spillover effect" from AI would continue into 2H26 and is accelerating qualification of new capacity to address supply shortages. HUA HONG GRACE provided even stronger guidance, forecasting revenue of USD770 million to USD780 million, implying another approximately 8% QoQ increase, with gross margin ranging from 16% to 18%. Management said incremental revenue is effectively a combination of rising volume and higher average selling prices, with MCU/embedded memory, discrete flash memory, low- and mid-voltage MOSFETs, RF and PMIC particularly strong. More importantly, HUA HONG GRACE expects momentum in MCU and discrete memory to continue through 2026 and 2027, indicating the recovery is becoming more structural rather than merely an inventory restocking cycle. Citi raised its 2026/27 EPS forecasts for SMIC and HUA HONG GRACE by 10% to 39% to reflect stronger profitability from improving pricing and capacity utilization trends. The broker maintained Buy ratings on both companies. The H-share TP for SMIC was raised from HKD90 to HKD100, based on an unchanged 4x PB ratio applied to the average book value per share for 2026/27. The H-share TP for HUA HONG GRACE was lifted from HKD160 to HKD175, based on an unchanged 5x PB ratio applied to the average book value per share for 2026/27. The target PB ratios are both two standard deviations above their historical PB ranges due to improving end-demand prospects and recovering pricing and capacity utilization trends. 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