Bank of America Securities: Reiterate "underperform" rating on HUA HONG SEMI(01347) with target price raised to HK$17.8.

Bank of America Securities released a research report stating that the target price for Hua Hong Semiconductor (01347) has been raised from 12 Hong Kong dollars to 17.8 Hong Kong dollars, as the average selling price of the company's chips is expected to stabilize, reflected in a 1% increase in the average selling price in the third quarter. If local competition eases, it is expected that shipments and prices will increase by 11% and 8% respectively by 2026. However, the bank believes that the average selling price and gross profit of Hua Hong's chips will remain weak until the first half of 2025, which is more cautious than market expectations. Therefore, the bank reiterated its "underperform" rating for Hua Hong. The bank pointed out that the inventory level of domestic fabless semiconductor companies in the third quarter is still high, with most inventory turnover days between 230 and 250 days, and no significant adjustments are seen in the second quarter. Therefore, the bank does not believe that fabless semiconductor companies will bring strong replenishment demand, or that chip prices for Hua Hong as an outsourcing supplier will rebound significantly in the first half of 2025. The fourth quarter guidance from the company's management, indicating that chip prices are still under pressure, is in line with the bank's view. The bank also stated that the market's expectations for the company's gross margin to recover to the mid-to-high teens of 14% to 16% in the first half of next year and close to 20% in the second half are overly optimistic.