We Expect Chinese Foundries to Recover in 2025, but Shares Rich on Stimulus and Pricing Expectations

Chinese foundries Hua Hong and Semiconductor Manufacturing International Corporation shared the 2025 outlook at their third-quarter earnings call that bears little surprise. Hence, we retain our fair value estimates on SMIC at HKD 14 and Hua Hong at HKD 16.50, respectively. Both companies are overvalued, in our view, as the market may have overestimated the extent of average selling price recovery, assuming a gradual recovery in automotive and industrial markets in 2025. Also, the market can be overbullish on the impact of fiscal stimulus on the duo. We still regard Taiwanese foundries TSMC and UMC as better semiconductor manufacturing plays.