Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

Thematic (Sector/Industry)

<ul>
<li>Foundry segment is on track to decline 15% YoY with no prospects of a meaningful H2 recovery</li>
<li>Inventory levels across smartphone, PC and consumer electronic supply chains remain elevated, plagued by lack-lustre end user demand. </li>
<li>At least some of the key players appear to be lowering prices but this is highly unlikely to stimulate end user demand and may actually make things worse</li>
</ul>


Foundry segment is on track to decline 15% YoY with no prospects of a meaningful H2 recovery
Inventory levels across smartphone, PC and consumer electronic supply chains remain elevated, plagued by lack-lustre end user demand. 
At least some of the key players appear to be lowering prices but this is highly unlikely to stimulate end user demand and may actually make things worse


Q2'23 Foundry Flounders As Inventory Stubbornly Lingers

China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

Hua Hong Semiconductor / Equity Bottom-Up

<ul>
<li>We expect Hua Hong to report C1Q23 top-line and non-IFRS net income in-line and (24%) vs. cons., respectively, missing mainly due to one-time costs. </li>
<li>Hua Hong’s post-A share IPO valuation is cheap at 0.7x P/B, but we expect that weakening industrials demand and a slow recovery to hamper shipments.</li>
<li>We maintain BUY but cut Hua Hong’s TP to HK$ 34 reflecting lowered wafer shipments estimates for FY24/25. Our TP implies 15x FY24 PE.</li>
</ul>


We expect Hua Hong to report C1Q23 top-line and non-IFRS net income in-line and (24%) vs. cons., respectively, missing mainly due to one-time costs. 
Hua Hong’s post-A share IPO valuation is cheap at 0.7x P/B, but we expect that weakening industrials demand and a slow recovery to hamper shipments.
We maintain BUY but cut Hua Hong’s TP to HK$ 34 reflecting lowered wafer shipments estimates for FY24/25. Our TP implies 15x FY24 PE.


[Hua Hong (1347 HK, BUY, TP HK$34) TP Change]: Valuation Is Attractive Post-Shanghai Listing

<ul>
<li>Hua Hong reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income in-line, (15.3%), and 13.3% vs. our est., and in-line, (3.4%), and 34.9% vs. cons., respectively. </li>
<li>Hua Hong reported 1Q23 utilization rate of 103%, higher than peers, which we believe is due to (1) large EV and new energy exposure, and (2) 8” price cuts. </li>
<li>Despite near-term margin deterioration, we maintain Hua Hong’s BUY and HK$ 35 TP due to auto IC exposure and localization, implying 11x FY24 PE.</li>
</ul>


Hua Hong reported C1Q23 top-line, IFRS EBIT, and non-IFRS net income in-line, (15.3%), and 13.3% vs. our est., and in-line, (3.4%), and 34.9% vs. cons., respectively. 
Hua Hong reported 1Q23 utilization rate of 103%, higher than peers, which we believe is due to (1) large EV and new energy exposure, and (2) 8” price cuts. 
Despite near-term margin deterioration, we maintain Hua Hong’s BUY and HK$ 35 TP due to auto IC exposure and localization, implying 11x FY24 PE.


[Hua Hong (1347 HK) Earnings Review]: Capacity Ramp and High LIBOR Impact Profitability

<ul>
<li>Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially.</li>
<li>Gross margin was 32.1%, up 5.2 points YoY but down 6.1 points sequentially.</li>
<li>HH is playing a blinder through the downturn and likely beyond...</li>
</ul>


Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially.
Gross margin was 32.1%, up 5.2 points YoY but down 6.1 points sequentially.
HH is playing a blinder through the downturn and likely beyond...


Hua Hong Semi (1347.HK) Q1'23 Revenue US$630.8 Million, Flat QoQ, +6.1% YoY. Q2'23 Flat QoQ

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of May 12th.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight flows for Cnooc, Bank Of China, Petrochina, China Shenhua Energy, CCB, HKEX, SMIC.</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of May 12th.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight flows for Cnooc, Bank Of China, Petrochina, China Shenhua Energy, CCB, HKEX, SMIC.


Hong Kong Connect Flows (May 12th): CNOOC, BOC, Petrochina, China Shenhua Energy, CCB, HKEX, SMIC

China

Hua Hong Semiconductor Limited manufactures semiconductors on 200mm wafers for specialty applications. The Company's products are used in the consumer electronic, communication, computing and industrial, and automotive industries.

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Hua Hong Semiconductor (1347 HK)

Q2'23 Foundry Flounders As Inventory Stubbornly Lingers

Foundry heading for 15% YoY decline with no prospect of a meaningful H2 recovery. Some key players may be lowering prices. This is unlikely to...

William Keating

[Hua Hong (1347 HK, BUY, TP HK$34) TP Change]: Valuation Is Attractive Post-Shanghai Listing

We maintain BUY but cut Hua Hong’s TP to HK$ 34 reflecting lowered wafer shipments estimates for FY24/25. Our TP implies 15x FY24 PE.

Blue Lotus Research Institute

[Hua Hong (1347 HK) Earnings Review]: Capacity Ramp and High LIBOR Impact Profitability

Despite near-term margin deterioration, we maintain Hua Hong’s BUY and HK$ 35 TP due to auto IC exposure and localization, implying 11x FY24 PE.

Blue Lotus Research Institute

Hua Hong Semi (1347.HK) Q1'23 Revenue US$630.8 Million, Flat QoQ, +6.1% YoY. Q2'23 Flat QoQ

Q1’23 revenues of US$630.8 million, up 6.1% YoY and flat sequentially. Gross margin 32.1%, up 5.2 points YoY but down 6.1 points QoQ. HH is playing...

William Keating

Hong Kong Connect Flows (May 12th): CNOOC, BOC, Petrochina, China Shenhua Energy, CCB, HKEX, SMIC

We analyzed southbound Hong Kong connect flows in the past week and highlight flows for Cnooc, Bank Of China, Petrochina, China Shenhua Energy,...

Ke Yan, CFA, FRM

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