Shareholders of Hua Hong Semiconductor Limited (HKG:1347) will be pleased this week, given that the stock price is up 12% to HK$18.02 following its latest quarterly results. It looks to have been a decent result overall - while revenue fell marginally short of analyst estimates at US$460m, statutory earnings beat expectations by a notable 150%, coming in at US$0.019 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the 16 analysts covering Hua Hong Semiconductor provided consensus estimates of US$2.02b revenue in 2024, which would reflect a discernible 4.3% decline over the past 12 months. Statutory earnings per share are expected to shrink 7.6% to US$0.086 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$2.14b and earnings per share (EPS) of US$0.078 in 2024. While revenue forecasts have been revised downwards, the analysts look to have become more optimistic on the company's cost base, given the solid gain to to the earnings per share numbers.
The consensus has made no major changes to the price target of HK$17.50, suggesting the forecast improvement in earnings is expected to offset the decline in revenues next year. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Hua Hong Semiconductor at HK$23.47 per share, while the most bearish prices it at HK$7.08. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that revenue is expected to slow, with a forecast annualised decline of 5.7% by the end of 2024. This indicates a significant reduction from annual growth of 25% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 13% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Hua Hong Semiconductor is expected to lag the wider industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Hua Hong Semiconductor following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply they will perform worse than the wider industry. Even so, long term profitability is more important for the value creation process. The consensus price target held steady at HK$17.50, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Hua Hong Semiconductor analysts - going out to 2026, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Hua Hong Semiconductor , and understanding them should be part of your investment process.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.