Hua Hong 4Q24_ Rev in-line but profitability missed, negative for foundry but positive for semicap

Summary of Hua Hong Semiconductor Ltd 4Q24 Earnings Call Company Overview - Company: Hua Hong Semiconductor Ltd - Industry: Semiconductors - Rating: Outperform - Price Target: - H-share: 30.00 HKD - A-share: 55.00 CNY Key Financial Highlights - 4Q24 Revenue: 539.2 million USD, in-line with expectations, showing a 2.4% QoQ increase and 18.4% YoY increase [12] - Gross Profit: 61.4 million USD, lower than expected, with a Gross Profit Margin (GPM) of 11.4%, down 77 basis points QoQ [10] - Net Income Margin (NPM): -4.7%, significantly missing expectations due to foreign exchange headwinds [10] - CapEx: Doubled QoQ to 2.7 billion USD for the full year, indicating a strong commitment to capacity expansion [2] Guidance and Market Outlook - 1Q25 Guidance: Revenue expected between 530-550 million USD, missing consensus of 560 million USD; GPM guidance of 9.0%-11.0% also below consensus [11] - Management Outlook: Cautiously optimistic for 2025, focusing on capacity expansion despite supply pressures [3] - Capacity Expansion Plans: Wuxi Fab 9 to accelerate installation of 12" equipment, targeting effective capacity of 20-30kwpm by end of 2025 [3] Industry Insights - Matured Node Foundry Demand: Remains strong in China, but competition is intensifying, leading to pricing pressures [4] - Semiconductor Capital Expenditure: Accelerated CapEx is expected to positively impact the semiconductor capital equipment market in 2025 [4] Investment Implications - Potential for Re-rating: As demand for matured node foundry in China recovers, Hua Hong is expected to benefit from improved utilization and ASP increases over the next 12 months [41] - Concerns: Risks include slower-than-expected recovery in matured node foundry demand and potential supply/demand imbalances due to rapid capacity expansion by competitors [49] Additional Financial Metrics - Market Capitalization: 55.54 billion CNY [5] - Performance: - YTD: 21.5% - 1M: 22.0% - 6M: 43.1% - 12M: 76.5% [5] Conclusion Hua Hong Semiconductor Ltd's 4Q24 results indicate a mixed performance with revenue meeting expectations but profitability metrics falling short. The company is focusing on aggressive capacity expansion amidst a competitive landscape, with cautious optimism for 2025. The semiconductor industry outlook remains positive, particularly for capital equipment, despite potential risks related to demand recovery and pricing pressures.