3Q24 revenue and gross margin slightly exceeded expectations

Huahong Semiconductor released its three-quarter report: Hong Kong stock caliber 3Q24 revenue of 0.5263 billion dollars, QoQ +10.0%, YoY -7.4%; slightly exceeding the previous quarter's 5.0 to 0.52 billion dollar guidance and market expectations, gross profit margin of 12.2%, QoQ+1.7ppt, YOY-3.9ppt, slightly exceeding the previous quarter's 10% ~ 12% guidance and market expectations; net profit to mother of 44.8 million dollars, QoQ +571.6%, YoY+ 222.65%; slightly above market and our expectations. We believe that the company's revenue and gross margin slightly exceeded expectations, mainly due to shipments exceeding expectations, and net profit attributable to mother slightly exceeding expectations due to foreign currency exchange earnings and government subsidies.

Development trends

Looking at the revenue volume and price breakdown: In terms of volume, 3Q24's 8-inch operating rate was 113.0%, 12-inch operating rate of 98.5%, and comprehensive utilization rate of 105.3%, all increased from the previous quarter. The 12-inch increase was particularly significant, with a month-on-month increase of 8.8 ppt, and wafer shipments of 1.2 million pieces (equivalent to 8 inches), an increase of 8.4% month-on-month; in terms of price, the overall ASP trend showed fluctuating month-on-month dynamics, and the growth in power device shipments dragged down the ASP increase. reflect.

Looking at revenue product breakdown: Revenue from embedded non-volatile memory declined slightly month-on-month, and revenue from power devices, logic, radio frequency, analog and power management increased slightly month-on-month, reflecting that demand for smart cards is still weak, and demand for medium- and low-voltage power devices other than IGBTs and superjunctions, CIS, and PMICs (some related to AI servers) is stabilizing.

The company's 3Q24 operating expenses were 81.4 million US dollars, all declining year on month, mainly due to a decrease in R&D project expenses; other revenue of 51.8 million US dollars, an increase from month to month, mainly due to foreign currency exchange earnings and government subsidies; and net profit corrected to 22.9 million US dollars.

The company gave a 4Q24 revenue guideline of 5.3 to 0.54 billion US dollars, and a gross profit margin guideline of 11% to 13%, which is slightly lower than the market and our expectations. Looking ahead, we believe that a slight increase in prices may positively help the company's performance, but in the short term, weak recovery in the semiconductor cycle will still have a depressing effect on overall prices. Fab9 is progressing smoothly. The company expects to start selling in 4Q24 and start contributing revenue in 2025, driving revenue growth while adding depreciation.

Profit forecasting and valuation

Referring to the company's 4Q24 guidelines, the company's 2024 revenue was slightly lowered by 3.9% to 2.004 billion US dollars (down 12.3% year on year), while the 2025 revenue was reduced by 5.1% to 2.289 billion US dollars (up 14.2% year on year), which mainly reflects the weak recovery trend of semiconductors in the short to medium term. Corresponding to a reduction of 13.2%/9.8% in 2024/2025 net profit to $0.114/0.151 billion. The company was valued using the P/B valuation method, and the current stock price corresponds to 0.7x/0.7x P/B in 2024/2025. The target price of HK$22.40 remains unchanged, corresponding to 0.8x/0.8x P/B in 2024/2025. There is 5% room for an increase, and the outperforming industry rating remains unchanged.

risks

There is a risk of a decline in capacity utilization, an increase in average sales prices falling short of expectations, the recovery in terminal demand falling short of expectations, and intensifying market competition.