<Earnings First Take> 4Q23 adjusted net loss US$16m; weak 1Q24 gross margin guidance, in line
- 4Q23 revenue decreased by 27.7% y-o-y with adjusted net loss at US$16m, in line with market expectations
- Weak 1Q24 gross margin guidance due to pricing pressure and low utilisation of newly added capacity
- Expect end demand and thus profitability to take longer to recover than anticipated. Maintain HOLD with TP under review
4Q23 adjusted net loss of US$16m, in line. Hua Hong (1347 HK) announced its 4Q23 results yesterday after HK market close. Revenue decreased 27.7% y-o-y to US$455m due to prolonged weak end-market demand. Gross margin dropped 34.2ppt y-o-y to 4.0% due to (1) persistent ASP pressure in the consumer electronics-related segments and (2) a lower utilisation rate on newly installed capacity. Accordingly, net profit plunged 76.7% y-o-y to US$35m. An adjusted net loss of US$16m was recorded, after excluding a government subsidy of US$51m, in line with market expectations. EPS was US$0.021. The overall utilisation rate slightly decreased to 84.1%, vs. 86.8% in 3Q23.
Expect slower recovery in consumer electronics demand. Management is guiding for a 26% y-o-y decline in 1Q24 revenue with a gross margin of 3-6%, in line with market expectations. We expect end-market demand, and thus pricing, to take longer than expected to recover due to the persistent weakness in mature node products such as MCU and power management IC. Maintain HOLD with TP under review.