Hua Hong (1347.HK): Flash and PMIC to ride on AI spending; Huali integration and 12-inch expansion support growth; Buy

We are positive on Hua Hong, supported by China AI spending and customers' "China for China" strategy to better secure supply. As our Global Server TAM update shows, we expect leading Chinese cloud platforms to grow capex by 105%/21%/14% YoY in 2026-28E, with our CSP capex estimates raised by 14%/15%/11% over 2026-28E. We expect generative AI to support demand for embedded/standalone NVM and PMIC products, while Huali Micro consolidation broadens the group's 12-inch manufacturing platform and technology-node coverage. Together with continued capacity investment, we expect the integration to support Hua Hong's longer-term expansion across advanced and mature process nodes. While higher depreciation and integration costs could weigh on near-term profitability, we expect additional revenue contribution and improving operating leverage as the business scales up. We revise our 2026E-28E net income estimates by -5%/-2%/+3%, raise our 2028E revenue estimate by 2% and lower our 2027E GM estima