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, expecting revenues to grow sequentially in 3Q26/4Q26E, driven by China AI spending and customers' "China for China" strategy to better secure supply. China Semis Capex growth and the expanding China AI chips TAM reflect opportunities for Hua Hong. Generative AI remains the key driver, boosting demand for embedded flash, NOR flash and power management IC. The company continues to expand capacity with utilization rates remaining at a high level amid strong demand and technology node migration, supporting pricing and margins. In September, 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 statements. We expect the acquisition to broaden Hua Hong's 12-inch manufacturing platform and support its longer-term capacity and technology-node expansion. Maintain Buy. Key downside risks include weaker-than-expected end-market demand, s