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

Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

<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 ECM and Index Rebal, Shenton Research

Ke Yan, CFA, FRM

Asia Pac ECM and Index Rebal

Asia Pac IPO & Placement Research, China Biotech

DZT Research

DZT Research is an independent Asia Pacific equity specialist. Our quantitative research covers index rebalancing flows, alongside exchange data analytics accross Asia Pacific. On the equity capital markets side, we focus on Asia Pacific ECM, especially biotech and TMT. Our lead analyst is frequently cited by international media.

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

<ul>
<li>We expect Hua Hong to report C1Q23 top-line, IFRS operating income, and IFRS net income in-line, 14.1% and 19.1% vs. consensus, respectively. </li>
<li>Our sample of 1Q23 A-share fabless balance sheets showed that inventory days rose, which we expect will lead to a slowdown in wafer orders beginning in 2Q23.</li>
<li>Despite near-term weakness, we are positive the longer-term benefits of (1) localization, and (2) EV demand. We maintain BUY and raise TP to HKD35.</li>
</ul>


We expect Hua Hong to report C1Q23 top-line, IFRS operating income, and IFRS net income in-line, 14.1% and 19.1% vs. consensus, respectively. 
Our sample of 1Q23 A-share fabless balance sheets showed that inventory days rose, which we expect will lead to a slowdown in wafer orders beginning in 2Q23.
Despite near-term weakness, we are positive the longer-term benefits of (1) localization, and (2) EV demand. We maintain BUY and raise TP to HKD35.


[Hua Hong (1347 HK) Target Price Change]: High IGBT Inventory Signals Pause in Top-Line Growth

China

Hua Hong Semiconductor is a global pure-play semiconductor foundry specializing in embedded/standalone non-volatile memory, power discrete, analog & power management, and logic & RF technologies. The company provides diversified wafer fabrication and supporting services for various specialty process platforms. It is headquartered in Shanghai, China, and was founded in 2005.

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Hua Hong Semiconductor (1347 HK)

[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

[Hua Hong (1347 HK) Target Price Change]: High IGBT Inventory Signals Pause in Top-Line Growth

We expect Hua Hong to report C1Q23 top-line, IFRS operating income, and IFRS net income in-line, 14.1% and 19.1% vs. consensus, respectively.

Blue Lotus Research Institute

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