4Q23 revenue and gross margin reached the guidelines, and 1Q24 is expected to continue to bottom out. The company announced unaudited results: 4Q23 achieved sales revenue of US$455 million (YoY -27.8%, QoQ -19.9%) and gross margin of 4.0% (YoY -34.2pct, QoQ -12.1pct), all within the guidance range (revenue of US$45-50 million, gross margin of 3%-5%). In 2023, the company achieved total sales revenue of US$2,286 billion (YoY -7.7%), gross margin fell to 21.3% (YoY -12.8pct), and profit attributable to parent company owners fell to US$280 million (YoY -37.8%). The company guides 1Q24 sales revenue to be between US$45-50 million, and gross margin of about 3%-6%, which is comparable to 4Q23's performance.
Demand for MCU, power management, NOR, etc. declined, and 4Q23 shipments fell 12% month-on-month. 4Q23 shipped equivalent to 951 thousand 8-inch wafers (YoY -4.1%, QoQ -11.7%), and the capacity utilization rate was 84.1% (YoY-19.1pct, QoQ -2.7pct). Among them, 8-inch wafers earned $251 million (YoY -36.9%, QoQ -16.2%), capacity utilization rate 91.0% (YoY -14.9pct, QoQ -4.3pct); 12-inch wafer revenue was 270 million (YoY -27.7%, QoQ -24.2%), and capacity utilization rate 77.5% (YoY -9.1pct, QoQ -2.7pct). Currently, demand for MCUs, power management, smart cards, NOR, etc. is declining, and demand for IGBT and CIS is growing. In 2023, the company shipped a total of 4103 thousand 8-inch wafers (YoY +0.4%), with a capacity utilization rate of 94.3% (YoY -13.1pct).
The new plant in Wuxi is expected to be put into operation by the end of 2024, and the company will enter a period of high capital expenditure. 4Q23 Company's capital expenditure was US$194 million, including Huahong 8-inch US$29 million, Huahong Wuxi US$122 million, and Huahong Manufacturing US$181 million. By the end of 4Q23, the company's production capacity had increased to 391,000 8-inch wafers, of which Huahong Wuxi had reached a monthly production capacity of 94,500 12-inch wafers; the construction phase of the Huahong Wuxi manufacturing project is progressing according to plan and is expected to be completed and put into production by the end of 2024, forming a 12-inch monthly production capacity of 15,000 wafers. The first phase, or 40,000 wafers per month, was completed in 3Q25, and gradually formed a monthly production capacity of 83,000 12-inch wafers within three years. Therefore, we expect the company's capital expenditure to increase significantly from 2024 to 2026, and the successive commissioning of two new wafer production lines will also bring about a significant increase in depreciation.
Investment advice: Optimistic about the long-term prospects of leading domestic process foundry companies and maintain a “buy” rating; according to the company announcement, we lowered our 2023 revenue to US$2,286 billion (previous value of US$2,291 million) and raised net profit to US$280 million (previous value US$270 million); according to company guidelines and the current outlook for industrial and automotive semiconductor demand, we lowered 2024-2025 revenue to US$2,068/2,490 billion (previous value of US$2,04/2,837 billion US dollars), plus the previously mentioned companies Depreciation pressure increased, and net profit was lowered to US$0.97 billion (previous value: US$121 million/US$316 million). The company's 2024-2025 BPS is expected to be $3.74/3.90 (previous value of $3.72/3.90), corresponding to 0.56/0.54 times PB, maintaining a “buy” rating.
Risk warning: downstream demand slows down; introduction of new processes falls short of expectations; expansion of production falls short of expectations.