Citi has upgraded its earnings forecasts for SMIC (00981.HK) and Hua Hong Semiconductor (01347.HK), reflecting a stable outlook for both companies amid rising demand for semiconductors fueled by artificial intelligence. The investment bank has raised SMIC's target price from HKD 75 to HKD 90 and Hua Hong's from HKD 115 to HKD 160, signaling increased confidence in their growth prospects.
This upgrade follows SMIC's first-quarter results, which surpassed expectations, along with second-quarter revenue growth guidance that also exceeded market forecasts. This anticipated growth is linked to improved average selling prices, higher shipment volumes, and better order visibility. Analysts expect SMIC's mature nodes, particularly the 28nm technology, to remain significant profit drivers, while advancements in its 14nm and selective 7nm technologies are expected to enhance its competitive position.
For Hua Hong Semiconductor, the company reported an 18.7% year-on-year revenue increase from the Chinese market in the first quarter, supported by growth across several platforms, including microcontrollers (MCU), power management integrated circuits (PMIC), embedded memory, and smart card chips. Citi's analysts noted the potential for further price increases, particularly in NOR flash memory and other supply-constrained platforms, with expected hikes of 10% to 15% this year.
Citi's report emphasizes the impact of AI-related demand and the trend of localization in China, anticipated to generate strong order momentum for both discrete devices and power management products. This optimism is further supported by expectations that Hua Hong's Wuxi 12-inch wafer fab will achieve full capacity utilization by the third quarter of 2026.
In terms of specific forecasts, Citi has raised SMIC's earnings per share (EPS) estimates for 2026 and 2027 by 27%, reflecting improved profitability driven by ongoing local and AI-related growth. The firm's investment rating on SMIC has changed from Neutral to Buy, indicating a more aggressive outlook on potential gains.
Citi has also increased earnings forecasts for Hua Hong Semiconductor by approximately 7% for 2026 and 2% for 2027, as demand for power management applications continues to grow. This sustained expansion in these sectors has led Citi to reaffirm its Buy rating for Hua Hong, which is included in their “Adding Upside 90-Day Short-Term View” list.
Both companies are poised to benefit from advancements in AI technology and the localization of semiconductor production in China, positioning them favorably for future growth. As the semiconductor market evolves, driven by technological innovation and changing demands, SMIC and Hua Hong Semiconductor are well-positioned to take advantage of these trends, likely enhancing their market valuations in the years ahead.
