Hua Hong Semiconductor Shares Drop on Weaker Net Profit

By Sherry Qin

Hua Hong Semiconductor's shares fell sharply after it reported significantly lower quarterly net profit amid a global chip-industry slowdown.

Shares of the Shanghai-based semiconductor company dropped 8.2% to 14.38 Hong Kong dollars (US$1.84) early Wednesday, taking declines to 24% this year.

Hua Hong said after Tuesday's market close that its fourth-quarter net profit fell to US$35.39 million from US$159.14 million in the year-earlier period. Its gross margin slid to 4.0% from 38.2%, which the company attributed to lower average selling prices and capacity utilization.

"2023 was an extremely challenging year for the global semiconductor industry due to depressed market conditions," said Junjun Tang, president and executive director at Hua Hong.

For the first quarter of the year, the company forecast revenue of US$450 million to US$500 million, with gross margin in the 3%-6% range.

Citi said Hua Hong's near-term bottom is well anticipated. However, its demand recovery outlook in China remains uncertain, analysts Laura Chen and Jack Chen said in a research note.

Citi maintained a sell rating on Hua Hong, with the target price unchanged at HK$15.00, citing its consistent new capacity ramp-up and rising depreciation costs.

Hua Hong would have posted a net loss in the fourth quarter if government subsidies are subtracted, Jefferies analysts said in a note.

Meanwhile, China's rapid expansion of supply capacity on mature nodes could put pressure on Hua Hong's average selling price and utilization rate due to intense competition, Jefferies said. The U.S. bank, which has a hold rating on the stock, cut its target price to HK$17.00 from HK$21.00.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

February 06, 2024 22:41 ET (03:41 GMT)

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