Spend 8.2 billion to buy a factory: Huahong has no choice
On May 29, Huahong Company (688347.SH) officially replied to the review inquiry letter from the Shanghai Stock Exchange, responding one by one to nine major issues such as the transaction purpose and integration management of the acquisition of Huali Microelectronics, the technology and market position of the target company, the rationality of the evaluation, revenue, cost and gross profit margin, fixed assets, inventory, and the raised matching funds. This 8.268 billion yuan acquisition case has thus entered the deep - water area of substantial review.
However, the origin of this transaction can be traced back to three years ago.
When Huahong Company was listed on the Science and Technology Innovation Board in 2023, its controlling shareholder, Huahong Group, made a legally binding commitment in the prospectus: to incorporate Huali Microelectronics into the listed company system within three years. Calculated according to the agreed time at that time, August 2026 is the expiration node of the commitment.
In other words, from the very beginning, this transaction was not a multiple - choice question of "whether to do it" but a fill - in - the - blank question of "when to finish it".
With the compliance obligation in front, industrial synergy is just an incidental gain. When the driving force of the transaction comes from a commitment rather than market judgment, the rhythm, pricing, and scheme design will follow a different logical line.
01 Competing Business: A Knot That Has to Be Unraveled
Both Huahong Company and Huali Microelectronics belong to Huahong Group. Although their main businesses are both wafer foundry, their positioning has different focuses. Huahong Company attaches importance to specialty processes, while Huali Microelectronics tends to focus on logic processes.
Even so, the two companies in the same track still have some business overlaps. The contradiction mainly lies in the intermediate cross - regions of the 65/55nm and 40nm nodes. In the three platforms of standalone non - volatile memory, embedded non - volatile memory, and logic and radio frequency, it would be difficult for Huahong Company to pass the competing business review if it rashly carried out the acquisition at that time.
In fact, although the customer overlap of the two companies is not high and there is no real direct competition, the regulatory judgment standard is the financial caliber rather than the business essence. As long as the proportion of this part of the revenue exceeds the red line, the recognition of competing business cannot be avoided.
In response, before the listing of Huahong Company, the shareholder Huahong Group carried out a temporary business segmentation, assigning the two memory businesses to Huahong Company and the logic and radio frequency to Huali Microelectronics. The two sides each kept to their boundaries and did not cross the line. However, this is only a transitional scheme, not the final solution. There has always been only one way to completely eliminate competing business - to let the assets with a competitive relationship belong to the same entity.
This determines the special feature of the transaction structure. This time, Huahong Company is not acquiring all the original assets of Huali Microelectronics, but only the part directly related to competing business, that is, Fab5. The more advanced Fab6 of Huali Microelectronics, which specializes in 28/22nm, is not within the scope of this acquisition.
There are multiple considerations behind the non - incorporation of Fab6. First, Huahong Company's strategic positioning is the "leader in specialty processes", while Fab6 follows the advanced logic route. If it is incorporated together, the listed company will change from a single - line to a double - line business, which conflicts with its own positioning and will also lead to direct competition with SMIC. Second, the capital expenditure of the 28/22nm production line is huge. Fab6 is still in the climbing period, and its profitability is uncertain. Incorporating it into the listed company will drag down the financial performance. Third, the valuation of assets in the incubation period has low certainty. Packaging it in now will only make the transaction pricing more complicated and the review more difficult. Therefore, keeping Fab6 within the group provides more flexibility. It can independently raise funds, introduce strategic investors, and even be separately listed in the future, with much more operating space than being locked in the listed company.
For this reason, Huali Microelectronics must first spin off Fab5 from its body to form an independent legal entity, and then Huahong Company will acquire 97.5% of the equity of this entity (Huahong Company already indirectly holds 2.5%, and will achieve 100% control after the acquisition). The advantage of this "spin - off then acquire" structure is precision, only affecting the part with a competitive relationship and not affecting the independent operation space of more advanced processes. However, the spin - off itself is a tough battle. The equipment in the shared production line needs to be split and assigned one by one, the boundaries of patents and process parameters need to be clearly defined to avoid future disputes, the shared supply chain system needs to be rebuilt, and the labor relations of the core technical team need to be transferred one by one. The suspension announcement of Huahong in August 2025 specifically marked that "the target asset is in the spin - off stage". Behind these few words is the spin - off operation that has not been completed for several months.
02 Reaching the Capacity Ceiling, Can't Wait Anymore
The compliance commitment is pushing Huahong Company forward, but it really doesn't want to wait either.
In the second quarter of 2025, the capacity utilization rate of Huahong Company reached 108.3%. The production lines were fully loaded or even over - loaded, and it couldn't handle the incoming orders. What a foundry fears most is not the lack of demand, but the lack of capacity when there is demand. The growth ceiling is not set by the market, but by the production lines.
Fab5 is exactly the most ready - made capacity expansion plan. It has a monthly production capacity of 38,000 12 - inch wafers. It belongs to the same group, with clear property rights, and there is no external negotiation game. Once it is consolidated into the financial statements, the capacity bottleneck will be immediately alleviated. More importantly, the equipment of Fab5 has entered the final stage of depreciation, and the book cost has been fully amortized. After integration, it is equivalent to obtaining a mature production line at a low cost.
Process complementarity is another driving force. Huahong Company has long been deeply involved in specialty processes. Its power device foundry capacity ranks among the top in the world, and its embedded storage and power management products have entered the automotive electronics supply chain. However, the logic and radio frequency field, especially the 40nm RF - SOI direction, has always been a shortcoming. Huali Microelectronics just fills this gap. Its 55nm and 40nm low - power logic processes have reached the international leading level, and the 65/55nm radio frequency process occupies the mainstream among domestic foundries. After integration, Huahong Company will extend from specialty processes to logic radio frequency, forming a continuous process coverage from 55nm to 28nm. In application scenarios such as automotive electronics, 5G communications, and AIoT that require the dual - track support of power devices and logic radio frequency, manufacturers that can provide one - stop foundry services obviously have higher competitive barriers.
This transaction plan uses a combination of issuing shares and raising matching funds, with a consideration of 8.480 billion yuan (valued by the market method), a price - to - book ratio of 4.24 times, and an EV/EBITDA of 9.95 times. The pricing at the multiple level is not outrageous. Huali Microelectronics had a revenue of 5.101 billion yuan in 2025 and a capacity utilization rate of 102.68%. After consolidation, the increase in the revenue scale is real. From these perspectives, Huahong Company really needs Huali Microelectronics.
03 "Divided for a Long Time, They Will Surely Unite" Has Become the Consensus of Current Foundry Leaders
Taking a broader view, it can be found that current foundry leaders are all doing the same thing.
At the end of December 2025, SMIC announced that it would issue shares to five shareholders including the National Integrated Circuit Industry Investment Fund to acquire 49% of the equity of SMIC North. After the completion of the transaction, SMIC North will become its wholly - owned subsidiary, and the shareholding ratio of the National Fund in SMIC's H - shares will increase from less than 5% to over 9%.
The two transactions of Huahong and SMIC occurred in the same period, and their structures are highly similar: both are foundry leaders incorporating in - system capacity assets into the listed company, both involve the deep participation of the National Fund, and both achieve the hierarchical leap of state - owned assets from project shareholders to listed company shareholders through the issuance of shares.
This is not a coincidence, but an inevitability of the industrial stage. In the past more than a decade, China's wafer foundry has followed a decentralized construction route. Local governments have provided funds and land, and the National Fund has injected capital. Fabs have blossomed everywhere across the country. However, problems such as scattered capacity, cross - ownership, and competing business have accumulated, and resources cannot form a synergy. When the industry enters the "efficiency competition" from the "factory - building competition", integration is a rigid need. Incorporating scattered capacity into the listed platform, clarifying the state - owned equity, and opening up the exit and increase channels are the inevitable choices at this stage. Huahong Company's acquisition of Huali Microelectronics and SMIC's acquisition of SMIC North are both typical cases under this integration trend. At the same time, the certainty of domestic substitution is also accelerating the implementation of the integration. Changes in tariff policies have accelerated the flow of orders from US - based IDMs to mainland foundries. There is a structural shortage of global mature - process capacity, and all four factories of Huahong Company have passed the automotive - grade certification. After the integration is completed, Huahong Company's industry position in the specialty - process track will be further strengthened, forming a differentiated competition pattern with SMIC.
04 Epilogue
From the start of the listing commitment to the approaching end of this game of Huahong Company, on the surface, it is a company fulfilling its compliance obligation. In essence, it is an epitome of China's semiconductor industry moving from dispersion to intensification.
When Huahong and SMIC both incorporate their in - system capacity into the listed platform, the direction of industry integration is clear enough. However, the direction is one thing, and the implementation is another. Spending 8.2 billion yuan to buy a factory is just the first step. Whether it can transform it from "book assets" into "competitive barriers" is the real answer that Huahong Company has to give. With two months left on the countdown, Huahong Company's integration test is just beginning.
This article is from the WeChat official account "Morning Whistle M&A" (ID: MW - Group), author: Chen Mo. It is published by 36Kr with authorization.