The Zhitong Finance App learned that Guoxin Securities released a research report stating that it maintains the “buy” rating of Huahong Semiconductor (01347) and is optimistic about the long-term prospects of leading domestic wafer foundry companies. According to the company's announcement, the bank lowered the company's 2023 revenue to US$2,286 million (previous value: US$2.291 billion) and increased net profit to US$280 million (previous value: US$270 million); according to company guidelines and the current demand outlook for industrial and automotive semiconductors, the 2024-2025 revenue was lowered to US$2,068/2,490 million. Coupled with the increase in depreciation pressure on the company, the net profit was lowered to US$0.97 billion 276 million.

The main views of Guoxin Securities are as follows:

4Q23 revenue and gross margin reached the guidelines, and 1Q24 is expected to continue to bottom out.

The company released 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 profit 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 billion, and gross margin of about 3%-6%, which is comparable to 4Q23 performance.

Demand for MCU, power management, NOR, etc. declined, and 4Q23 shipments fell 12% month-on-month.

4Q23 was 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 wafer revenue was US$251 million (YoY -36.9%, QoQ -16.2%), capacity utilization rate 91.0% (YoY-14.9pct, QoQ-4.3pct); 12-inch wafer revenue of 270 million (YoY -27.7%, QoQ -24.2%), and capacity utilization rate of 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 4,103 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 has capital expenditure of 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 projected by the end of 2024, forming a 12-inch monthly production capacity of 15,000 to 20,000 pieces. 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, the bank expects 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.