報告_Daiwa_亞洲晶圓代工_20261009

PDF 原檔：報告_Daiwa_亞洲晶圓代工_20261009_original.pdf

圖片清單（已驗證 2026-10-12）

ingest 時建立的「眼見為憑」圖片索引，是 lib/ 嵌圖的唯一真相來源。015–034 與世界先進首次覆蓋報告 001–020 逐檔 cmp 位元相同、008–010 與聯電報告 001–003 相同；<40KB 未 Read 者免列（預設小圖／logo）。

原始內容

Asia Foundry

A paradigm shift in specialty nodes

• A ripple effect in demand from advanced to specialty foundries spurred by AI scaling from compute to power/connectivity
• Likely paradigm shift in the foundry industry driven by TSMC's fab optimisation augmenting demand for specialty nodes
• Reaffirming our Positive stance on the sector and initiating coverage of VIS, which we expect to benefit from this paradigm shift

What's new: TSMC at its series of results calls delivered not only escalated business guidance but its effort of fab optimisation to address supply constraints driven by accelerated AI HPC demand. This, together with a ripple effect from advanced to specialty foundry demand spurred by AI scaling from compute to power and connectivity, will likely shift the paradigm in the industry, unlocking demand for specialty nodes which we expect to structurally benefit peers from 2H26. Among TSMC's peers we cover offering specialty foundry works, we initiate coverage of Vanguard International Semiconductor (VIS) with an Outperform (2) rating and 12M TP of TWD210, as we believe VIS is benefiting from this paradigm shift.

What's the impact: AI scaling spurring specialty foundry demand. Flagged in our series of AI thematic reports since 2023, we envision the AI buildout a multi-year cycle scaling from generative to agentic to physical, and from cloud to edge to ubiquitous. The scaling is not only spurring demand for core chips benefiting advanced foundries but companion chips benefiting specialty foundries, in order to facilitate the entire ecosystem of compute, connectivity, and power. Since many AI companion chips do not require advanced nodes, second-tier foundries have followed TSMC as the second-wave beneficiary on the AI ramp, seeing improved capacity utilisation with improved pricing power, per our market research, thanks to a ripple effect in the specialty foundry demand which should help push utilisation higher into 2027 to reach full levels.

Augmented by TSMC's fab optimisation. We expect such a ripple effect to be further augmented by TSMC's fab optimisation, in order to address a supply shortfall in the advanced foundries caused by the strong AI HPC demand. This looks set to shift the paradigm in the foundry industry, structurally benefiting peers' operating specialty nodes. We expect the fab optimisation to unlock business worth of c.USD3bn pa, or c.40% of UMC's 2025 revenue, with spillover taking effect from this year and ramping into 2027-28E, considering different timings of TSMC's fab closures and associated lead times for customer qualifications of alternative fabs.

What we recommend: Among the specialty foundries under our coverage in Asia, we initiate on VIS with an Outperform (2) rating and expect it to benefit from this paradigm shift, in addition to UMC (Hold [3]). HHGrace (Buy [1]) and SMIC (Sell [5]) should also benefit, yet to a lesser extent for the latter due to geopolitical issues.

How we differ: We believe we are one of few brokers quantifying business potential from TSMC's fab optimisation to the second-tier foundries.

Key stock calls

Source: Daiwa forecasts

Sector stocks: key indicators

Source: Bloomberg, Daiwa forecasts; note: share prices in local currency as of close on 7 October 2026

Table of contents

AI scaling augmented by fab optimisation for a paradigm shift in the foundry industry benefiting specialty nodes

Initiating coverage of VIS with an Outperform (2) call in this report

CUR at second-tier foundries are improving as many AI companion chips don't require advanced nodes

A paradigm shift in specialty nodes

TSMC at its series of quarterly results calls this year (Too good to be true? (II), 16 April; Yes, it's good and it's true, 16 July) delivered not only escalated business guidance but its strategy of fab optimisation, in order to address supply constraints driven by rapidly growing demand for AI high-performance compute (HPC) chips that require advanced technology nodes. We view its fab optimisation as likely shifting the paradigm in the foundry industry, unlocking demand for specialty process nodes structurally benefiting peers from this year. TSMC's fab optimisation should help augment a ripple effect in demand being spurred by AI scaling from compute to power and connectivity, ever since this multi-year AI buildout cycle began from 2023 after OpenAI's ChatGPT dropped from the air.

Among TSMC's peers we cover offering specialty foundry works, we see Vanguard International Semiconductor (VIS) as benefiting from this paradigm shift, thus initiating our coverage of the stock with an Outperform (2) rating and 12M TP of TWD210. Elsewhere, we believe UMC will benefit from this shift, thus raising our forecasts in this report, though we are comfortable with our Hold (3) rating on valuation grounds. While Huahong Grace Semiconductor (HHGrace; rated Buy [1]) stands to benefit from China's AI developments, we see SMIC (rated Sell [5]) also benefiting, but to a lesser extent, due to geopolitical issues such as the US's export controls prolonging its advanced technology developments.

AI scaling spurring specialty foundry demand

As flagged in our series of AI thematic reports since 2023 (Let's talk about AI or … bubble? 11 July 2023, Let's talk about AI, not bubble, 25 October 2024, and Let's talk more about AI, ASIC AI this time, 1 July 2025), we have envisioned the AI buildout a multi-year cycle scaling vertically by language from generative (data training) to agentic (data inference) to ultimately physical AI, and scaling horizontally by application from cloud to edge to ultimately ubiquitous AI (ie, AI everywhere).

Ever since late-2022 when OpenAI's ChatGPT dropped from the air, followed by Nvidia kicking off the AI build from 2023, this multi-year AI scaling has not only spurred demand for core chips such as GPU and application specific IC (ASIC) as accelerators benefiting advanced foundries, but for companion chips such as optical engines, drivers, super transimpedance amplifier (TIA), digital signal processor (DSP), and power semiconductors benefiting specialty foundries, in order to facilitate the entire AI ecosystem of compute, connectivity, and power, as well as memory, illustrated in a chart next page.

Many AI companion chips do not require advanced process nodes but specialty technologies such as silicon-germanium (SiGe), silicon-on-insulator (SoI), and bipolarCMOS-DMOS (BCD) with a variety of heavily doped wafer materials such as galliumnitride (GaN), GaN-on-silicon and GaN-on-silicon-carbide (SiC) handling a variety of different voltage currents ranging from a few volts to over 1,000v. Therefore, we have seen improved capacity utilisation rates (CUR) across the second-tier foundries since the start of the year which offer these specialty technologies, following TSMC as the second-wave beneficiary on the AI ramps, thanks to a ripple effect in the specialty foundry demand which should help push the second-tier CUR higher through 2027 to reach full levels, according to our market research.

As illustrated in a chart next page, we expect the CUR among the second-tier foundries of UMC, HHGrace, and VIS, following the trough in 1Q23 on the post-COVID inventory correction, to follow TSMC's trajectory, accelerating in 2H26E to 90% or above and reaching the 100% level through most time of 2027-28E, resulting in improved pricing power for the like-to-like price hikes varied in different timings.

A broad-based AI ecosystem and key supply-chain players

Source: Daiwa

Note: * ASIC includes a variety of customized chips such as xPU, BMC and HSI controller (PCIe, SATA); CSP = cloud service provider

Asia Foundry: capacity utilisation trends among foundry majors*

Asia Foundry: blended ASP trends among foundry majors*

Source: Companies, Daiwa estimates and forecasts

Note: * wafer shipment divided by installed capacity, not wafer output

Source: Companies, Daiwa estimates and forecasts Note: * in USD terms on 8' equivalent basis for the like-to-like comparison

Augmented by TSMC's fab optimisation

We expect such a ripple effect in the specialty foundry demand to be further augmented by TSMC's fab optimisation, in which the foundry leader aims to address a supply shortfall in the advanced foundry works caused by the strong AI HPC demand, including AI CPU, all types of xPU as accelerators and base dies for high bandwidth memory (HBM), by TSMC's definition. We expect its optimisation strategy to likely shift the paradigm in the foundry industry structurally to benefit peers operating specialty process nodes.

TSMC's fab optimisation looks set to further augment the AI demand ripple effect

TSMC: expected schedule of mature fab closures

Source: Company, Daiwa estimates

Note: * wpm = wafers per month

TSMC's fab optimisation may unlock c.USD3bn in business pa

Among the specialty foundries under our coverage, our preference goes to VIS and HHGrace According to our market research, in order to accommodate more advanced packaging capacity such as chip-on-wafer-on-substrate (CoWoS), TSMC is shutting down one 6' fab (Fab 2) and one 8' fab (Fab 5) this year with a combined capacity of c.98k wafers per month (wpm) in 8' equivalent size (ie, 200mm in wafer diameter). Covering process nodes ranging from 0.8u to 0.15u, closures of the 2 mature fabs will likely unlock business ranging from USD700m to USD800m pa, depending on the average selling prices (ASP) for different nodes ranging from USD250 for 0.8u to more than USD700 for 0.15u, on our estimates, or more than 40% of VIS's 2025 revenue. We see VIS as the key beneficiary from this fab optimisation, given its strategic ties with TSMC.

We further expect TSMC to close one 12' mega-fab in Taichung Science Park named Fab 15/P3 and convert it to accommodate more advanced capacity of N3, in order to meet the strong AI HPC demand. This mega-fab consists 2 phases thus operating a combined capacity of c.50k wpm in 300mm size, on our estimates, with process nodes mainly focused on 28/22/20nm for ASP ranging from USD3,800 to USD4,000. Therefore, the closure will likely unlock business of USD2.3bn pa on average, or c.30% of UMC's 2025 revenue. UMC and GlobalFoundries (GF) look well positioned to benefit here as both operate the 28/22nm process nodes. All together, we reckon the foundry leader's fab optimisation will likely unlock extra business worth of USD3bn pa, or nearly 40% of UMC's 2025 revenue, with likely an order spillover taking effect from this year and ramping into 2027-28, considering TSMC's different timings of fab closures and associated lead times for customers to qualify alternative fabs which should typically take 9-12 months.

Stock recommendations

Among the specialty foundries under our coverage, we expect VIS to benefit from this likely paradigm shift thanks to its historical ties with TSMC which has strategically helped transform VIS's business from memory to mixed-signal processes and further advance it to value-add power semiconductors capitalising on the multi-year AI scaling. UMC stands to benefit from this scaling with its specialty foundry offerings and active 28/22nm ramps, though we view investors largely pricing in this potential. We expect HHGrace and SMIC to benefit from this AI scaling, but less than their Taiwan counterparts especially for SMIC, due to the geopolitical issues such as export controls and AI regulations from the US diluting the scaling benefit as the world appears to be divided into 'China for China' and 'non-China for non-China', in terms of the semiconductor supply chain.

Key downside risks to our Positive stance on the sector are 'silicon inflation' in the supply chain and geopolitical overhangs (war, tariff, interest rate) leading to global inflation and AI capex cuts. Please refer to the company section for more company-specific details.

We initiate coverage of Vanguard International Semiconductor (VIS) with an

Outperform (2) rating and 12M TP of TWD210 by applying our ROE-adjusted PBR target of 5.2x one-year forward BVPS forecast. Key downside risks: 1) current chip upcycle ends earlier than expected; and 2) the 12' fab ramp/execution turns out below expectation.

We reaffirm our Buy (1) rating for TSMC and 12M TP of TWD3,000, based on an unchanged ROE-adjusted PBR target of 7.7x on our one-year forward BVPS. Key downside risks are silicon inflation and geopolitical overhangs leading to global inflation and AI capex cuts.

Asian foundry: valuation panel

Source: Companies, Bloomberg, Daiwa forecasts

Note: * Local currency based on closing prices as of 7 October 2026

When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at http://www.hk.daiwacm.com/research_disclaimer.html or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong

We reaffirm our Buy (1) rating for HHGrace and SOTP-based 12M TP of HKD139. Key downside risk: changes in asset-injection plans.

We maintain our Hold (3) call for UMC but raise our 12M TP to TWD145 (previous: TWD108), based on our higher ROE-adjusted PBR target of 4.2x (previous: 3.3x). Upside/ downside risks: price hikes above our expectations/geopolitical overhangs (war, FX, interest rate) weighing on end-demand.

We maintain our Sell (5) rating for SMIC and 12M TP of HKD40, based on our ROEadjusted PBR target of 1.1x applied to our one-year forward BVPS forecast. Key upside risk to our call would be any positive breakthrough on geopolitics and export controls.

Taiwan Semiconductor Manufacturing (2330 TT)

Taiwan Semiconductor Manufacturing

Target price: TWD3,000.00 (from TWD3,000.00)

Shareprice(7Oct):TWD2,585.00 | Up/downside:+16.1%

The man who cares about the supply chain

• AI scaling is benefiting peers on AI spillover demand
• Fab optimisation looks set to augment the benefit
• Maintain our Buy (1) call and 12M TP of TWD3,000

What's new: We concur what the chairman said on the 2Q26 results call that TSMC doesn't sell milk (ie, a commodity), which one can buy at another convenience store. Yet when AI demand is deriving from its leading advanced services vs. the 'milk' one can buy from other convenience stores, peers stand to benefit from a ripple effect in demand on the AI scaling (ie, AI spillover), from core compute to memory to connectivity to power, augmented by TSMC's fab optimisation addressed in the main section of this sector report. That said, as TSMC still under-ships demand in the advanced foundry and backend services, we see a good chance for it to exercise pricing power in 2027, striking a balance between profitability and supply-chain interests. We haven't embedded price hikes in our model, thus keep our forecasts and TP, reaffirming our Buy (1) call.

What's the impact: 3Q26 preview and 4Q26 outlook. We estimate TSMC to have earned 3Q26 EPS of c.TWD28.5, varying not much from the consensus estimate. Monthly revenue came in at TWD982bn (+49% YoY) QTD, reaching 67% of our 3Q26E revenue which we consider as tracking inline. We expect TSMC's 4Q26 revenue to advance 10% QoQ (+54% YoY) to USD50.4bn for an EPS of TWD31.8, also varying not much from the consensus. While we keep our 2027-28 forecasts unchanged, we see upside from a possibility that TSMC would raise wafer prices to mitigate cost pressure from its Arizona operation and materials cost hike across the supply chain. TSMC is scheduled to report on 15 October; we will offer our updates in due course.

Optimisation benefiting supply chain. As addressed in the main sector section of this report, TSMC is closing some of its legacy fabs over 2026-27 to address the supply constraint caused by the strong AI demand for advanced frontend wafer manufacturing and backend packaging & testing technologies. We expect its fab optimisation to unlock businesses worth c.USD3bn pa and benefit peers who offer specialty foundry services. We expect the optimisation to augment a ripple effect in the AI demand on scaling from compute to connectivity to power (AI spillover). We believe TSMC is happy to let go such spillover businesses given its limited bandwidth to handle the advanced foundry and backend demand.

What we recommend: We stick with our 12M TP of TWD3,000 for TSMC, based on an unchanged ROE-adjusted PBR target of 7.7x on our one-year forward BVPS. We maintain Buy (1) with downside risks of silicon inflation and geopolitical overhangs leading to global inflation and AI capex cuts.

How we differ: Our 2028E EPS looks 15% below Bloomberg consensus likely due to our view calling for a soft-landing in the chip cycle.

3

2

1

(unchanged)

Rick Hsu (886) 2 8758 6261 rick.hsu@daiwacm-cathay.com.tw

Sam Weng (886) 2 8758 6255 sam.weng@daiwacm-cathay.com.tw

Forecast revisions (%)

Source: Daiwa forecasts

Share price performance

Financial summary (TWD)

Source: FactSet, Daiwa forecasts

Financial summary

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)

Source: FactSet, Daiwa forecasts

Financial summary continued …

Balance sheet (TWDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Incorporated in Taiwan in 1987, Taiwan Semiconductor Manufacturing Co. (TSMC) is the world's largest complementary metal oxide semiconductor (CMOS) foundry in revenue terms. TSMC offers foundry services such as wafer masking, fabrication, probing, packaging and testing, to a high variety of customers including fabless chipmakers and IDMs. Its manufacturing fabs are located in Taiwan, China, the US and Singapore.

TSMC: key operating assumptions, quarterly P&L estimates and forecasts

Source: Company, Daiwa estimates and forecasts

Note: * Calculated as wafer shipment divided by capacity estimated by Daiwa

TSMC: 3Q26 results preview and 4Q26 business outlook

Source: Bloomberg, Daiwa estimates and forecasts

Note: * Calculated as wafer shipment divided by capacity

TSMC: monthly revenue run-rate*

Source: Company, Daiwa estimates and forecasts

Note: * Figures over September-December 2026 are estimated by Daiwa

Source: Company, TEJ, Daiwa forecasts

ESG analysis

ESG risks

Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.

Update Date: 8 Oct 2026

Source: Daiwa, Company

United Microelectronics (2303 TT)

United Microelectronics

Target price: TWD145.00 (from TWD108.00)

Shareprice(7Oct):TWD148.50 | Up/downside:-2.4%

A beneficiary of the AI ripple effect, but …

• UMC looks set to benefit from AI demand spillover
• Yet we believe the AI ripple effect is being priced in
• Maintain our Hold (3) call, with a higher 12M TP of TWD145

What's new: Given its longstanding position in the global foundry industry, ever challenging TSMC's leadership during the late 1990s, we believe UMC stands well to benefit from a ripple effect in demand spurred by AI scaling, as detailed in the main section of this report. We expect UMC's wafer loadings to reach 100% from 1Q27, with price hikes to go through (see Price hike to go through? Still likely, 31 July). That said, we believe the equity market has priced in this AI strength on extra volume and pricing power for UMC. Hence, we stick with our Hold (3) rating on the counter.

What's the impact: 3Q26 preview and 4Q26 outlook. We expect UMC to report 3Q26 net profit of TWD16.4bn (+9% YoY), varying not much from the Bloomberg consensus. Its monthly revenue finished at c.TWD49bn QTD, reaching 65% of our/consensus 3Q26 estimates, which we consider tracking inline. For 4Q26, we expect UMC to earn net profit of TWD16bn, 13% below consensus, as the street seems to be assuming higher nonoperating gains. UMC is scheduled to report results on 28 October; we will be offering updates in due course.

<=28nm ramp on AI scaling and fab optimisation. UMC's 28/22nm-andbelow revenue contribution has hovered around the high-30% range over the past 2 years, after meaningful ramp during the COVID period on broadened demand applications from display drivers and TV SoCs to power management. With AI scaling creating a ripple effect in companion chip demand for connectivity (ie, silicon photonics) and power (ie, server PMICs), we believe UMC is well positioned to benefit from any spillover demand, with the strength augmented by TSMC's fab optimisation, which could strengthen UMC's pricing power. Given that UMC's wafer loadings are likely to reach 100% from 1Q27, we expect its price hikes to go through and model increases of 2-5%, effective from 1Q27, across nodes related to AI applications. This should resume its <=28nm ramp to exceed a half of revenue in 2028. All in, we raise our 2027-28E EPS by 22%.

What we recommend: Despite our forecast revisions, we remain comfortable with our Hold (3) rating for UMC, as we believe its AI strength is already priced in. We raise our 12M TP to TWD145 (previous: TWD108), based on our higher ROE-adjusted PBR target of 4.2x (previous: 3.3x) applied to 1-year-forward BVPS on a higher ROE trajectory. Upside/ downside risks would be any price hikes above our expectations/ geopolitical overhangs (war, FX, interest rate) weighing on end-demand.

How we differ: Our 2026-28E EPS do not vary much from consensus, indicating that UMC's AI strength is already reflected in its valuation.

5

4

2

Rick Hsu (886) 2 8758 6261 rick.hsu@daiwacm-cathay.com.tw

Sam Weng (886) 2 8758 6255 sam.weng@daiwacm-cathay.com.tw

Forecast revisions (%)

Source: Daiwa forecasts

Share price performance

Financial summary (TWD)

Source: FactSet, Daiwa forecasts

Financial summary

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)

Source: FactSet, Daiwa forecasts

Financial summary continued …

Balance sheet (TWDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Incorporated in Taiwan, United Microelectronics Corp (UMC) is one of the leading semiconductor foundries in the world and second largest in Taiwan. UMC offers a series of foundry services from photo-mask, wafer fabrication to wafer probe & test. Its wafer fabs are spread over Taiwan, China and Singapore, with technology offerings ranging from 0.25u and above, 0.18/0.15u, 0.13u, 90nm, 65nm, 45/40nm, 28/22nm to 14nm FF.

UMC: key operating assumptions, quarterly P&L estimates and forecasts

Source: Company, Daiwa estimates and forecasts

UMC: 3Q26 results preview and 4Q26 business outlook

Source: Bloomberg, Daiwa estimates and forecasts

Note: * Calculated as wafer shipment divided installed capacity

UMC: 28/22nm-and-below revenue contribution*

Source: Company, Daiwa estimates and forecasts

Note: * Including 14nm FF

Source: Company, TEJ, Daiwa forecasts

ESG analysis

ESG risks

Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.

Update Date: 8 Oct 2026

Source: Daiwa, Company

Semiconductor Manufacturing Int'l Corp (981 HK)

Semiconductor Manufacturing Int'l Corp

Target price: HKD40.00 (from HKD40.00)

Shareprice(7Oct):HKD60.90 | Up/downside:-34.3%

Yes, AI, yet constrained by geopolitics

• A foundry leader in China set to benefit from AI innovations
• Yet likely seeing suboptimal operations due to 'national mission'
• Reaffirming our Sell (5) rating and 12-month TP of HKD40

What's new: As China's foundry leader, SMIC should benefit, among local peers, from China's AI innovations to cope with geopolitical pressures, such as multiple lithography patterning, time scaling in advanced packaging technology and logic folding. Yet, to serve what we view as China's 'national mission' to catch up with the West in AI, SMIC has to suboptimise its operations for suboptimal profitability, as evidenced by its abnormal capex cycle and resulting depreciation burden. As such, we remain comfortable with our Sell (5) rating on the stock, though we view such a rating in capital markets may not be fair and truly reflecting its authentic fundamentals.

What's the impact: 3Q26 preview and 4Q26 outlook. We expect SMIC to report 3Q26 net profit of USD399m, 7% below consensus, as the street appears to be assuming higher non-operating gains. For 4Q26, we forecast net profit of USD364m, down 9% QoQ but up 40% YoY, on flat top-line of USD3.1bn (+25% YoY), due to seasonality, as customers tend to manage inventory towards year-end.

Geopolitical concerns lingering despite AI. As China's foundry leader, SMIC should benefit, among local peers, from China's innovative AI developments, such as multiple lithography patterning, time scaling in advanced packaging technology and logic folding. Yet, to serve what we view as China's 'national mission' to catch up with the West in AI, SMIC has to suboptimise its operations for suboptimal profitability, as evidenced by its abnormal capex cycle over 2020-26 and the resulting depreciation burden. This, combined with lingering geopolitical uncertainty, prevents us from turning positive on the stock. President Xi and President Trump met in the US last month; we hope that any constructive breakthroughs in the future will help reset SMIC's competitiveness for normalised profitability.

What we recommend: We rate SMIC Sell (5), with a 12M TP of HKD40 (unchanged), based on our ROE-adjusted PBR target of 1.1x applied to our one-year-forward BVPS forecast. Though our rating may not truly reflect SMIC's fundamentals due to geopolitical issues, we await any breakthrough between the 2 power nations on trade conflicts to normalise SMIC's operations. Key upside risk to our call would be any positive breakthrough on geopolitics and export controls.

How we differ: Our 2028E EPS is 4% below Bloomberg consensus, likely due to our view calling for a soft-landing in the chip cycle.

4

3

2

Rick Hsu (886) 2 8758 6261 rick.hsu@daiwacm-cathay.com.tw

John Hetherington, CFA (852) 2773 8787 john.hetherington@hk.daiwacm.com

Forecast revisions (%)

Source: Daiwa forecasts

Share price performance

Financial summary (USD)

Source: FactSet, Daiwa forecasts

Financial summary

Key assumptions

Profit and loss (USDm)

Cash flow (USDm)

Source: FactSet, Daiwa forecasts

Financial summary continued …

Balance sheet (USDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Incorporated in China in 2000, Semiconductor Manufacturing International Corp (SMIC) is the largest dedicated semiconductor foundry in China. It offers product services, such as wafer fabrication, masking, packaging and testing. Its fab operations spread over major cities of China, including Shanghai (8", 12"), Beijing (12"), Tianjin (8') and Shenzhen (8", 12"). It has also set up JV fabs with the governments and teamed up with Jiangsu Changjiang Electronics Technology (JCET, 江蘇長電).

SMIC: key operating assumptions, quarterly P&L estimates and forecasts

Source: Company, Daiwa estimates and forecasts

SMIC: 3Q26 results preview and 4Q26 business outlook

Source: Bloomberg, Daiwa estimates and forecasts

Note: * Calculated as wafer shipment divided by capacity

SMIC: capex and capital intensity*

SMIC: PBR trend*

Source: Company, Daiwa forecasts

Note: * Capital intensity = capex / revenue

Source: Company, Bloomberg, Daiwa forecasts

Note: * PBR calculations do not include the A-share-listed market cap, thus deflating multiples

ESG analysis

ESG risks

Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.

Update Date: 7 Oct 2026

Source: Daiwa, Company

HuaHongGraceSemiconductor (1347HK)

Hua Hong Grace Semiconductor

Target price: HKD139.00 (from HKD139.00)

Shareprice(7Oct):HKD105.30 | Up/downside:+32.0%

3Q26 preview: steady ASP growth outlook

• Positive earnings growth momentum in 3Q26E and 4Q26E
• Favourable supply-demand environment, thanks to AI investment
• Reaffirming our Buy (1) rating and 12-month TP of HKD139.0

What's new: We expect HHGrace to continue to post positive earnings growth momentum in 3Q26E and 4Q26E, on the back of both volume and ASP strength. We believe HHGrace will continue to inject Huali's (HLMC) assets into the listed company, thereby expanding HHGrace's business portfolio and manufacturing footprint.

What's the impact: 3Q26 preview and 4Q26 outlook. We forecast HHgrace to report revenue of USD775m in 3Q26E, up 22% YoY and 8% QoQ, driven by 15% YoY volume growth and a 6% YoY hike in ASPs. On a QoQ basis, we estimate a 3% improvement in ASPs. As a result, we expect net profit of USD58m in 3Q26E, up 124% YoY and 49% QoQ. We forecast the growth momentum to sustain into 4Q26, with 22% YoY expansion in revenue to USD804m, and 282% YoY growth in net profit to USD67m.

Mainstream business to benefit from AI ripple effects and TSMC's fab optimisation. HHGrace focuses on the production of Nor Flash, MCUs, power discretes, analog and RF products, covering 55nm and above process-node technology platforms. HHGrace began raising ASPs in 4Q25, thanks to demand tailwinds from AI investment. Also, we expect TSMC's capacity optimisation to cause short-term supply disruptions, resulting in sustained strength in pricing power for legacy-node foundry players.

Steady manufacturing footprint expansion. Despite wafer supply tightness, HHgrace maintains its Fab 9 expansion timeline, with wafer loading at Fab 9A (83,000wpm capacity) in 3Q26, reaching full utilisation in 2H27. Furthermore, Fab 9B (55,000wpm) is set to kick-start small-volume production in 2027, per HHgrace. We believe the expansion focus will be on the 55/40/28nm process nodes. HHGrace plans to complete HLMC's Fab 5 asset acquisition in 2H26. We expect more asset injections in 2027.

What we recommend: We maintain our SOTP-based 12-month TP of HKD139. We believe HHGrace will inject HLMC's assets into the listed company by 2030. We factor in the future asset value of HLMC through to 2030 by applying 2.5-4.0x PBRs to the fabs in Kangqiao, Zhangjiang and Chengdu, as well as HHSemi's assets, and then discounting back by 3.5 years at a 10% rate. We then apply a 70% discount due to the potential dilution from share issuance related to the acquisition of HLMC's assets. We reaffirm our Buy (1) rating. Key downside risk: changes in assetinjection plans.

How we differ: Our 2026-28E EPS are 9-30% below the Bloomberg consensus, likely as we are more cautious about its ASP and gross margin outlook.

3

2

1

(unchanged)

Bintuo Ni (86) 21 6841 3228 bintuo.ni@daiwacm.cn

Rick Hsu (886) 2 8758 6261 rick.hsu@daiwacm-cathay.com.tw

Forecast revisions (%)

Source: Daiwa forecasts

Share price performance

Financial summary (USD)

Source: FactSet, Daiwa forecasts

Financial summary

Key assumptions

Profit and loss (USDm)

Cash flow (USDm)

Source: FactSet, Daiwa forecasts

Financial summary continued …

Balance sheet (USDm)

Key ratios (%)

Source: FactSet, Daiwa forecasts

Company profile

Hua Hong Grace Semiconductor Limited manufactures semiconductors wafer foundry services. The Company produces embedded non-volatile memory, power discrete, analog, power management, and logic RF products. Hua Hong Semiconductor provides products for consumer electronics, communications, computing, industrial, and automotive fields.

HHGrace: financial forecasts

Source: Company, Daiwa forecasts

HHGrace: SOTP valuation

Source: Daiwa estimates and forecasts

ESG analysis

ESG risks

Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.

Update Date: 19 Aug 2026

Source: Daiwa, Company

Vanguard International Semiconductor (5347 TT)

Vanguard International Semiconductor

Target price: TWD210.00

Shareprice(7Oct):TWD190.00 | Up/downside:+10.5%

Initiation: fast ramp to capture the AI ripple effect

• Fully loaded through 2027 on AI scaling and fab optimisation
• Fast expansion to capture a paradigm shift in the foundry sector
• Initiating with an Outperform (2) rating and 12M TP of TWD210

Investment case: We initiate coverage of Vanguard International Semiconductor (VIS), a leading specialty foundry, with an Outperform (2) rating and 12-month TP of TWD210. We expect VIS to enjoy fully loaded operations (in terms of wafer-in) through 2027 with pricing power, thanks to a ripple effect as AI demand scales from compute to power, further augmented by TSMC's fab optimisation. Given VIS's historical ties with TSMC, which have strategically helped it advance its business transformation towards value-added specialty foundry offerings, it looks well positioned to benefit from this multi-year AI scaling, cemented by the fast expansion of its first 12' fab in Singapore to capitalise on what we observe as a paradigm shift in the foundry industry.

Fully loaded operations on AI ripple effect. We expect VIS's wafer loadings to approach full levels in terms of wafer-in through 2027, thanks to the AI scaling out and across creating a ripple effect for demand spillover and benefitting specialty foundries. Given its strategic partnership with TSMC, VIS stands to benefit from this multi-year AI build. Despite its pull-in of the 12' ramp, we do not expect such fast expansion to dwarf utilisations since all the planned capacity is sold out, thanks to long-term agreements (LTA) signed with customers amid the supply constraint, which should help VIS manage surging depreciation and minimise margin dilution.

Fast expansion to capture the paradigm shift. To capitalise on the likely paradigm shift in the specialty foundry segment, as detailed in the sector section, driven by TSMC's fab optimisation, VIS is pulling its 12' fab construction in Singapore nearly half a year ahead of schedule. VIS aims to start mass production from 1Q27 after hosting an opening ceremony on 28 September. We expect this fab to reach its first-phase designed capacity of 44,000 wafers per month (wpm) by end-2028, with c.30% of it dedicated to TSMC's wafer interposers and the rest for customers' power semiconductor and embedded flash chips, mainly for AI applications. We forecast VIS to enjoy counter-seasonal quarters through 2027, delivering revenue CAGR of c.30% over 2026-28 for an EPS CAGR of 26%.

Catalysts: 1) Record-breaking monthly revenue run rates through 2027; 2) upbeat guidance for the coming quarters; and 3) margin resilience to ease investors' concerns about depreciation amid the 12' ramp.

Valuation: We derive our 12M TP of TWD210 for VIS by applying our ROE-adjusted PBR target of 5.2x to our one-year-forward BVPS forecast.

Risks: 1) Current chip upcycle ends earlier than expected; and 2) the 12' fab ramp/execution turns out below expectation.

Rick Hsu (886) 2 8758 6261 rick.hsu@daiwacm-cathay.com.tw

Sam Weng (886) 2 8758 6255 sam.weng@daiwacm-cathay.com.tw

Financial summary (TWD)

Source: FactSet, Daiwa forecasts

Growth outlook

VIS: quarterly EPS growth trend

VIS's earnings have been volatile due to the cyclical nature of the semiconductor industry in which it operates. That said, barring its hefty growth during 2021-22 as an outlier due to the COVID-inflated chip demand, VIS will enjoy 3070% YoY EPS growth over 2Q26E-4Q27E, according to our forecasts, with strength similar to that in 2016 and 2018. On an annual EPS basis, we forecast a 30% CAGR over 2025-28.

Valuation

Source: Company, Daiwa estimates and forecasts

VIS: 4-quarter-forward PER bands

Trading at 24x on our 4-quarter-forward EPS, the VIS stock is priced at the high end of its post-2009 GFC range of 530x, suggesting a not-so-compelling valuation vs. history. Yet, considering our forecast of a robust 30% EPS CAGR over 2025-28, 24x does not look demanding from a PEG point of view. Valued by our ROE-adjusted PBR target of 5.2x, our 12M TP of TWD210 for VIS translates into a 26x 4-quarter forward PER, which looks reasonable in combination of both PBR and PER methodologies.

Earnings revision

Source: Company, TEJ, Daiwa estimates and forecasts

VIS: consensus EPS forecast revisions

Bloomberg consensus 2026-27 EPS forecasts for VIS have been trending up since February 2026, indicating positive investor sentiment. Our 2027E EPS is 5% above consensus, implying room for further upward revisions from the market to act as an upside catalyst for the stock, in our opinion.

Source: Bloomberg

Financial summary

Key assumptions

Profit and loss (TWDm)

Cash flow (TWDm)