1Q22 performance slightly exceeds previous performance guidelines
Hua Hong Semiconductor released 1Q22 results: 1Q22's single-quarter revenue was 595 million US dollars, slightly exceeding the previous performance guidance of 560 million US dollars. We think it is mainly driven by the increase in average sales unit price, YoY+95.1%,QoQ+12.6%. Gross profit margin is 26.9%. The increase in average sales unit price is offset by government subsidy audit adjustment, employee bonus and depreciation cost increase, which makes a month-on-month decline, but if the government subsidy audit adjustment is excluded, we estimate that the corresponding gross profit margin will be about 3ppt higher than the disclosed value, slightly higher than the previous performance guidance.
1Q22's capital expenditure is $124.1 million, of which $107.5 million is for Huahong Wuxi and $16.6 million is for the 8-inch plant.
Trend of development
The company's 1Q22 by technology platform has seen double-digit year-on-year growth in all kinds of business, especially flash memory and power management chips. Huahong 8-inch factory 1Q22 single-quarter revenue of US $332.6 million, YoY+32.9%,QoQ+3.1%; gross profit of 38.6% Magi YoYue 11.3 ppt QoQmuri 6.8ppt (mainly due to the audit adjustment of government subsidies). Huahong Wuxi 1Q22 single-quarter revenue of US $262 million, YoY+379.5%,QoQ+27.4%, production capacity steadily released; gross profit margin 12.0% recollection YoYQing 4.7 pptJo QoQmuri 0.1ppt.
The company expects 2Q22's quarterly revenue to be about $615 million (QoQ+3.4%) and gross profit margin of 28% to 29% (QoQ+1.1 to 2.1ppt). Under COVID-19 's epidemic situation, the company implemented closed management, and the capacity utilization rate of 1Q22 has been maintained at about 95%. The company expects that the performance of 2Q22 will also be good.
The company maintains its capital expenditure in 2022, and equipment procurement is not affected by Sino-US trade frictions. Huahong Wuxi 1Q22 monthly production capacity and output of 65,000 pieces, the company said at the results meeting that the second phase of production expansion has been implemented, has moved into 4 equipment, the company expects production capacity to reach 95,000 pieces per month by the end of this year or early next year. The company's full-year capital expenditure is about $1.5 billion, of which 12 inches corresponds to $1.4 billion and 8 inches to $180 million.
Recently, Taiwan Semiconductor Manufacturing Co Ltd announced that he would raise wafer prices by 5-9%, and Samsung would raise wafer prices by 15-20%. Against the background of rising global labor and material costs, we believe that Hua Hong Semiconductor is more likely to raise wafer prices in the next few quarters of this year to cope with inflationary pressures.
Profit forecast and valuation
Taking into account the possibility of raising wafer prices, we raised Hua Hong Semiconductor 2022 Universe's revenue of 29% in 2023 to $2.837 billion (up 56% and 12%), and increased its net profit by 40% to $347,402 million (up 32.6% and 15.8% year on year). The company's current stock price corresponds to 2022 1.5x/1.4x 2023. We maintain the company's outperform industry rating unchanged, taking into account the downward valuation center of Hong Kong stocks, we lowered the target price by 37.9% to HK $36, corresponding to 2022 GB 1.9x / 1.7xP/B in 2023, which is 23.5% upside from the current level.
Risk
The trend of average sales price is not as expected; the utilization rate of capacity is not as expected; the risk of epidemic spread.