Hua Hong (1347.HK): AI drives Flash / PMIC; 12-inch in expansion with Huali consolidation widening technology-node; Buy

We are positive on Hua Hong and expect revenues to grow at +11% / +15% QoQ in 3Q26 / 4Q26E (vs. +9% QoQ in 2Q26), driven by China AI spending and customers' "China for China" strategy to better secure supply. As we highlighted in CHIPS IV, we expect China Semis Capex to grow at +13% / +15% / +15% in 2026-28E, driven by memory and advanced nodes capacity expansion, and we estimate China AI chips TAM to grow at +142% / +69% / +6% CAGRs in 2025-30E to US$4,123bn / US$678bn / US$66bn by 2030E in our Bull / Base / Bear cases, reflecting opportunities for Hua Hong. The company continues to expand capacity with UT rates remaining at high level as strong demand, and technology node migration. Generative AI remains the key driver, driving demand from embedded flash, NOR flash, power management IC. In Sep, Hua Hong completed the acquisition of a 97.5% equity interest in Huali Micro, after which Huali Micro became a wholly-owned subsidiary and will be consolidated into the group's financial state