Hua Hong Semiconductor Ltd (1347 HK): Pull back to the lower bound of the trading range
- Reiterate Buy Entry – 39 Target – 45 Stop Loss – 37
- Hua Hong Semiconductor Ltd is an investment holding company engaged in production and sales of semiconductor wafers. The company produces 200mm and 300mm-wafers. Its products are applied in general microcontroller (MCU), Type-C interface chips, image stabilization chips, touch control chips, and smart meter controller chips. The products also serve the Internet of Things (IoT), new energy vehicles, artificial intelligence and other markets.
- 1H21 results were better than market expectations. Revenue reached a record high of US$651mn, an increase of 52.0% YoY primarily due to increased wafer shipments and improved average selling price. Gross margin was 24.2%, an increase of 0.6ppts YoY, primarily driven by improved average selling price and capacity utilization, partially offset by increased depreciation expenses. Profit for the period attributable to owners of the parent was US$77.1 million, an increase of 102.3% YoY.
- 90nm eFlash, 90nm BCD, 55nm CIS, DT-SJ, and IGBT were mass produced in the 12-inch production lines, thereby better meeting the capacity needs of customers. The company is the first Pure Play Foundry in the world to mass produce advanced FS-Trench IGBT on both 8-inch and 12-inch production lines at the same time.
- The company’s simultaneous progress in its “8+12” production line technologies and its “IC + Discrete” technology platforms development strategy for the Embedded Non-Volatile Memory, Analog & Power Management, and Logic & RF IC device and Discrete device businesses will provide its customers with comprehensive and excellent technical support in foundry field.
- Consensus estimates per the 12-month target price is at HK$54.95, implying a 26% upside potential. EPS is forecasted to grow at 72.5%/25.5%/20.0% for FY2021/22/23F, which would bring forward P/Es down to 36x/31x/27x FY2021/22/23F.