- Buy Entry – 38 Target – 44 Stop Loss – 35
- 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 Internet of Things (IoT), new energy vehicles, artificial intelligence and other markets. The Company operates its businesses through its subsidiaries.
- Another record high quarter in 4Q21. Revenue hit an all-time high of US$528.3 million, up 88.6% YoY and 17.0% QoQ. Gross margin was 29.3%, up 3.5 ppts YoY and 2.2 ppts QoQ. Net profit attributable to shareholders of the parent company was US$84.1 million, up 92.9% YoY and 65.6%. 1Q22 guidance remains upbeat. Revenue is expected to be approximately US$560 million. Gross margin is expected to be in the range of 28% to 29%.
- More or less priced in rate hike. Semiconductor sector performed poorly YTD due mainly to the expectations of rate hike and Fed balance sheet reduction. However, market leaders such as Taiwan Semiconductor Mfg. Co. Ltd. (TSM US) and Advanced Micro Devices, Inc. (AMD US) provided positive guidance for FY22 after they delivered strong 4Q21 results. The strong fundamentals are expected to offset the rate hike impact in the near term. Chip shortage will last longer than expected as demand growth outpaces the ramp-up in production.
- Consensus estimates. Updated market consensus of the estimated net profit growth in FY22/23 is 39.7%/12.3% respectively, which translates to 23.3x/20.7x forward PE. The current PE is 37.7x. Bloomberg consensus average 12-month target price is HK$53.08.