3Q21's performance slightly exceeds the previous company's guidance.
Hua Hong Semiconductor announced 3Q21 results: the company's 3Q21 revenue was 451 million US dollars per quarter, an increase of 78.5% over the same period last year and 30.4% month-on-month, exceeding the previous guidance of US $410 million; single-quarter gross profit margin was 27.1%, year-on-year growth 2.9ppt, month-on-month growth 2.3ppt, slightly higher than the previous 23% 2.3ppt 25% guidance; comprehensive capacity utilization reached 110.9%, year-on-year growth of 15.1ppt, month-on-month growth of 1.4ppt. We believe that it is mainly due to the improvement of the company's product structure and the increase in capacity utilization beyond expectations.
Of this total, the revenue of 3Q21's 8-inch production line in the single quarter was 314 million US dollars, up 33.2 percent from the same period last year and 20.2 percent from the previous year; gross profit margin was 35.2 percent, up 8.0ppt from the same period last year, 3.6 ppt from the previous year; and capacity utilization was 112.3 percent, up 10.3ppt from the same period last year and 0.2ppt from the previous year. The revenue of the 12-inch production line was 137 million US dollars, an increase of 723.3 percent over the same period last year, an increase of 62.5 percent over the same period last year; a gross profit margin of 8.5 percent, an increase of 26.5ppt over the same period last year, an increase of 5.2 ppt; and a capacity utilization rate of 108.7 percent, an increase of 4.6ppt.
Development trend
Benefiting from the strong demand in the downstream market, especially MCU, PMIC, IGBT, Super Junction, CIS, Logic & RF, the sales price of each process platform of the company has improved, and the capacity utilization rate is at a high level, driving the growth of revenue and gross profit margin of the company.
Through the process support of 8-inch production line to 12-inch production line and strong customer demand, Huahong Wuxi 12-inch production line successfully launched 65,000 pieces in October, achieving the capacity climbing target two months ahead of schedule.
Huahong Wuxi production capacity from 48,000 pieces / month to 65000 pieces / month in the process of climbing basically completed the coverage of all the characteristic process platforms of Huahong. In 2022, the company plans to further increase the production capacity of Huahong Wuxi to 95,000 pieces per month. 2Q21 began to increase its investment in the research and development of automotive electronic process platform, and many products processed by Huahong characteristic process will be able to be used in new energy vehicles.
Looking ahead to 4Q21, the company expects that the 8-inch production line portfolio will continue to be optimized and adjusted, and the 12-inch production line will be maintained at 65,000 films per month. The company expects 4Q21's quarterly revenue to reach $490 million and its gross profit margin to be in the 28% range of 27%.
Profit forecast and valuation
Considering that the company's 12-inch production capacity climbed higher than expected and the strong downstream demand for semiconductors, we raised the company's 20211G revenue by 9% to $1.968 billion in 2022 (up 66% by 23%), and increased the company's 2022 net profit by 9% by 15% to $184 million by 246 million (up 84% by 34%). The current share price corresponds to 2021 2.8x/2.6x B in 2022. Our company maintains its outperforming industry rating and its target price of HK $64.50, corresponding to 2021 4.0x/3.7x B in 2022, which has 41% upside compared to the current share price.
Risk
The trend of the average price of sales is not as expected; the utilization rate of capacity is not as expected.