Morgan Stanley released a research report stating that it raised the target price of Huahong Semiconductor (01347) by 8%, from HK$15.8 to HK$17, raised the 2024-2025 earnings forecast per share, and introduced a 2026 forecast to maintain the “in sync with the market” rating. With its flexible pricing policy, Huahong still poses a threat to other mature foundries. Currently, the company's production capacity is full, so if demand picks up, its pricing is likely to be more stable.
The bank pointed out that Huahong's gross margin for the first quarter of 2024 was in line with its guidelines, but the operating profit margin was better than expected, benefiting from other one-time revenue. The average unit selling price (ASP) fell 7% quarterly, and the overall utilization rate reached 91.7%, up from 84% in the fourth quarter of last year. The gross margin was 6.4%, slightly better than 4% in the previous quarter. The company's guidance for the second quarter of 2024 is broadly in line with expectations, benefiting from improved utilization and gradual improvement in gross margin.