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On Tuesday, Goldman Sachs issued a rating downgrade for Hua Hong Semiconductor Ltd (1347:HK) (OTC: HHUSF), moving its stance from Buy to Neutral. The investment firm also adjusted the price target slightly from HK$31.30 to HK$31.00. Stifel analysts cited the anticipated impact of pricing pressure within China’s mature node market and increased depreciation and amortization (D&A) expenses due to the new 12-inch factory commencing mass production in 2025 as primary factors for the downgrade.
According to Goldman Sachs, while Hua Hong’s capacity expansions are expected to bolster the company’s long-term growth and allow for greater scalability—especially given that utilization rates reached around 100% in the fourth quarter of 2024—the near-term earnings outlook appears to be less optimistic. The analysts believe that the current challenges will likely weigh on the company’s short-term financial performance.
The report from Goldman Sachs further elaborated that despite the long-term prospects, the immediate financial pressures would likely hinder earnings. The analysts noted that while there is an 18% upside to the new target price, this is less attractive compared to the average 30% upside for other semiconductor names that the firm rates as Buy.
Goldman Sachs also indicated that they consider Hua Hong’s stock to be fairly valued at current price levels, suggesting that the potential for significant price appreciation in the near term may be limited. This adjustment in the investment firm’s outlook reflects a more cautious stance on the stock’s immediate growth potential.
The revised price target of HK$31.00 represents Goldman Sachs’ updated valuation of Hua Hong Semiconductor based on the current market conditions and the company’s financial outlook. This adjustment aligns with the investment firm’s expectations of the company’s performance and the semiconductor industry’s dynamics.
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