Hua Hong Semiconductor (1347.HK):Rising ASP to drive growth in 2018; new fab to boost growth from 2019

2018-02-13 09:26 港股研报君 阅读 755

机构: 中金公司

评级:BUY

目标价:21.6港币

4Q17 results in line with expectations

Hua Hong Semiconductor announced its 2017 results: revenue +12% YoY to US$808mn and net profit +12.8% YoY to US$145mn or US$0.14/sh. We like Hua Hong’s strong position as a specialty foundry supplier and believe it will continue to bear fruits from rising ASP. Moreover, we are confident that the company will enjoy multi-year growth once its Wuxi fab starts mass production from 2019. 

Trends to watch 

Hua Hong to enjoy continuous rise in ASP: although its blended ASP dropped by 1.0% in 4Q17, we believe the company will continue to enjoy ASP uplift this year (+8.0%), thanks to improved product mix, and technology migrating to 90nm with sales contribution from <0.13um +9.3% QoQ in 4Q17. 

Wuxi fab to efficiently resolve supply restraints: its Wuxi 12” fab will have a capacity of 40kwpm when it enters mass production in 2H19. We believe the fab will effectively expand Hua Hong’s total capacity by 90kwpm after it is fully loaded; moreover, we note it will bring about strong synergies for technology migration to 65nm. The newly built up platform will enable the company to manufacture higher performance products – such as high speed MCUs – at a lower cost. 

Earnings forecast 

We broadly maintain our revenue forecast, fine-tuning our 2018/19e turnover by +0.7%/+0.4% to US$922mn/1,085mn. Considering its rising R&D expenses for newly established Wuxi fab, we trim our net profit by 8.9%/14.4% to US$164/190mn. 

Valuation and recommendation 

The stock is trading at 1.0x P/B. We maintain our BUY rating and target price of HK$21.60 (1.61x 2018e P/B). 

Risks 

Decline in wafer ASP; Wuxi fab capacity and yields ramp up slowly. 

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