20180614-交银国际证券-华虹半导体-01347.HK-2H18_likely_better_than_expected__raise_est_TP_5页_613kb

Hua Hong Semiconductor (1347 HK) Summary

Core Content

BOCOM Int'l Research has issued an update on Hua Hong Semiconductor (1347 HK), highlighting its strong performance and positive outlook for the second half of 2018. The report suggests that the company is well-positioned to benefit from rising 8" wafer prices and capacity optimization, leading to improved financial results and a revised target price.

Main Points

• Price Increase Outlook:

  • The 8" wafer price is expected to rise in 2H18 due to increased demand from sectors such as automotive semiconductors, industrial automation, and IoT.
  • UMC announced a price increase for 8" wafer products, which may further benefit Hua Hong and other pure 8" foundries.

• 2Q18 Performance:

  • 2Q18 results are expected to align with guidance as the price increase may not have an immediate impact due to a 2-month cycle time.
  • The report anticipates a stronger performance in 2H18 driven by price increases, high utilization, and product mix optimization.

• Stock Recommendation:

  • The stock rating is Buy, with the expectation that the total return will exceed that of the corresponding industry over the next 12 months.
  • The target price is raised to HK$28.00 from HK$23.00, based on a revised P/B multiple of 1.8x for 2020E.

Financial Highlights

• Revenue: Expected to grow from US$721m in 2016 to US$1,255m in 2020E, with a CAGR of approximately 15%.
• Net Profit: Projected to increase from US$129m in 2016 to US$245m in 2020E.
• EPS: Expected to rise from 12.42 US cents in 2016 to 19.03 US cents in 2020E.
• P/E Ratio: Projected to decrease from 23.1x in 2016 to 15.1x in 2020E.
• P/B Ratio: Projected to decrease from 2.0x in 2016 to 1.4x in 2020E.
• Dividend Yield: Expected to increase from 1.2% in 2016 to 1.7% in 2020E.

Key Financial Metrics

Financial Statements

• Income Statement:

  • Revenue: US$721m (2016), US$808m (2017), US$946m (2018E), US$1,089m (2019E), US$1,255m (2020E)
  • Net Profit: US$129m (2016), US$145m (2017), US$191m (2018E), US$214m (2019E), US$245m (2020E)
  • EPS: 12.42 US cents (2016), 13.91 US cents (2017), 15.55 US cents (2018E), 16.60 US cents (2019E), 19.03 US cents (2020E)

• Cash Flow Statement:

  • Net Cash Flow: (169) US$ m (2016), 34 US$ m (2017), 31 US$ m (2018E), 134 US$ m (2019E), 206 US$ m (2020E)
  • Cash at End: US$341m (2016), US$375m (2017), US$406m (2018E), US$540m (2019E), US$745m (2020E)

• Balance Sheet:

  • Total Assets: US$1,827m (2016), US$2,078m (2017), US$3,062m (2018E), US$3,655m (2019E), US$4,280m (2020E)
  • Shareholder Equity: US$1,489m (2016), US$1,695m (2017), US$2,243m (2018E), US$2,400m (2019E), US$2,581m (2020E)
  • Total Liabilities & Capital: US$1,827m (2016), US$2,078m (2017), US$3,062m (2018E), US$3,655m (2019E), US$4,280m (2020E)

Financial Ratios

Key Factors Supporting the Buy Rating

• Capacity Tightness: 8" wafer capacity is expected to remain tight, allowing for higher pricing and product mix optimization.
• Product Portfolio: Strong position in growth areas such as MCU, with reduced focus on lower-margin products like MOSFET or diodes.
• China Semiconductor Growth: Benefits from the growth of the semiconductor industry in China.
• Wuxi Fab: Expected to unlock capacity bottlenecks and enhance production capabilities.
• Solid Balance Sheet: Stable dividend and strong financial position.

Analyst Information

• Analyst: Chris Yim and Xinhe Deng
• Contact:
  • Chris Yim: christopher.yim@bocomgroup.com | (852)37661803
  • Xinhe Deng: xinhe.deng@bocomgroup.com | (852)37661856

Disclaimer

• The report is confidential and for private circulation only to clients of BOCOM International Securities Ltd.
• No part of the report may be copied, stored, or redistributed without prior written consent.
• The views and recommendations are subject to change and do not constitute an offer or solicitation to buy or sell securities.