Bank of America Securities: Shenghua Hongli (01347)'s target price to HK$69, the valuation is too high, reaffirming the “outperforming the market” rating

The Zhitong Finance App learned that Bank of America Securities released a research report saying that Huahong Hongli (01347) had second-quarter sales of US$718 million, up 9% from quarter to quarter, up 27% year on year, slightly higher than the upper limit of the company's guidance and expectations; gross margin expanded to 16.5%, better than the guideline of 14% to 16%; operating profit margin of 1.5%, the first time since the fourth quarter of 2023; net profit rose 85% quarterly to US$39 million, with profit of 2.2 US cents per share, in line with expectations. The bank's valuation base for Huahong was extended until 2027, and the target price was raised from HK$63 to HK$69. Considering that the valuation was too high, it reaffirmed the “underperforming market” rating.

The bank indicates that its average sales price is recovering. It is estimated that the average price of wafers rose by about 5% quarterly in the third quarter, which is roughly similar to the pricing outlook for other mature Asian process fabs, but slightly lower than the high single-digit increase previously predicted by the bank. It is expected that the moderate price recovery trend will continue until next year. However, considering that Huahong Hongli faces upward pressure on depreciation costs, it is expected that the company's profit margin and profitability will not improve significantly next year.