Hana Microelectronics: Potential strong THB and falling SiC prices to hit 3Q24 margins
- 2Q24 results missed consensus estimates; net profit dropped 41% y/y, hit by lower sales & narrow gross margin
- On a q/q basis, net profit grew 20% helped by weak THB against the greenback
- Risks to 3Q24 gross margin include strong THB and falling SiC prices
- Maintain HOLD with a TP of THB42, based on a 22.4x PE
Revenue dropped 8% y/y but rebounded 4% q/q to USD185mn. The y/y revenue drop was dragged by the IC division amidst the industry downcycle. The q/q improvement was led by most units except for the IC division in Jiaxing.
Gross margin narrowed y/y but rebounded q/q. Gross profit margin narrowed to 12.4% in 2Q24, vs. 15.0% in 2Q23. This was due to lower gross margin from IC business plus higher losses from Power Master Semiconductor (PMS) business in Korea. On a q/q basis, gross margin recovered from 10.5% in 1Q24 to 12.4% in 2Q24, helped by the weaker THB.
Cash flow from operations was still strong at THB2.2bn in 1H24, up sharply from THB1.4bn in 1H23 thanks to better working capital management.
Balance sheet remained strong, with net cash of THB9.0bn by end-2Q24. These include THB4.6bn in proceeds from the capital increase in Oct 2023. On 19 Oct 2023, HANA successfully issued 80.5mn new shares via private placement at the price of THB57 apiece. Total proceeds of THB4.6bn will be used for its future capacity expansion, especially its Power Master’s (PMS) business in Korea.
Outlook
Improved demand outlook for 2H24. EMS outlook remains firm, supported by auto/industrials and test measurement businesses. OSAT demand improved with utilisation rate expected to cross back to above 50% levels in 2H24. Revenue from the PMS business in Korea should improve as new SiC equipment is installed during the year, thus increasing its capacity for SiC products. Demand for SiC products has weakened slightly due to EV slowdown, thus resulting in price drops for. The RFID (inlays) business continues to be positive, and additional capacity is to kick in by end 3Q24. In all, we expect 3Q24 revenue to slightly recover q/q.
Strong THB and falling SiC prices could hit margins in 3Q24. The THB has appreciated sharply QTD from THB36.67/USD at end-2Q24 to THB34.42/USD currently. This does not bode well for HANA, which derives revenue in USD. SiC product prices’ sharp fall due to weakening EV demand is likely to hit margins further.
To book other income of USD8.5mn from Credit Suisse’s final payment in 3Q24. On 9 Aug 2024, HANA’s subsidiary received a USD8.5mn (THB299.4mn) final payment from Credit Suisse Asset Management (Switzerland) AG regarding the termination of Supply Chain Fund in 2021. HANA has realised loss on fair value measurement in 2021. Therefore, the money received will be recognised as other income in 3Q24.
EPS to drop 19% in 2024 before rising 36% in 2025. We finetuned our net profit forecasts by 1% this year and next to factor in lower gross margin assumptions. Based on our forecasts, HANA’s core earnings should drop 13% this year before rising 36% next year. EPS however will drop 19% this year because of the dilution impact from the capital increase in Oct 2023.
To invest THB745mn in a JV with PTT to set up a SiC wafer fab in Thailand. HANA’s board of directors on 24 Jul 2024 passed a resolution approving the company to additionally invest THB744.8mn in FT1 Corporation, based on its 49% stakes. FT1 is a joint venture between HANA and NewVersal Co., Ltd., which is a 100% owned company by PTT Pcl. (PTT). FT1 will have a registered capital of THB1.5bn, and NewVersal holds 51% stakes in the company while HANA holds 49%. The JV will set up an SiC wafer fab in Thailand. The plant, under BoI promotional privileges, will be located in Lampoon province and will start operations by mid-2027.
PMS has been contracted to provide technology transfer to FT1 and will also be FT1’s first customer to validate FT1 technical proficiency. Management expects PMS Korea to meet its capacity by the time FT1 becomes operational by mid-2027. PMS plans to continue its growth by using FT1’s foundry services.
Recommendation
Maintain HOLD with a TP of THB42. The stock now offers a 6% upside to our TP of THB42, based on a 22.4x 2024 PE (in line with its historical average). We therefore maintain HOLD.
| FY Dec | 2Q2023 | 1Q2024 | 2Q2024 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 6,910 | 6,371 | 6,752 | (2.3) | 6.0 |
| Cost of Goods Sold | (5,871) | (5,683) | (5,918) | 0.8 | 4.1 |
| Gross Profit | 1,039 | 687 | 834 | (19.7) | 21.4 |
| Other Oper. (Exp)/Inc | (392) | (415) | (419) | 6.9 | 1.0 |
| Operating Profit | 646 | 272 | 415 | (35.9) | 52.5 |
| Other Non Opg (Exp)/Inc | 123 | 95.5 | 79.5 | (35.4) | (16.7) |
| Associates & JV Inc | 0.00 | 0.00 | 0.00 | - | - |
| Net Interest (Exp)/Inc | 12.8 | 11.6 | 23.6 | 84.9 | 104.0 |
| Exceptional Gain/(Loss) | (114) | (39.1) | (111) | 3.2 | 182.9 |
| Pre-tax Profit | 668 | 340 | 407 | (39.0) | 19.8 |
| Tax | (32.9) | (26.6) | (30.9) | (5.9) | 16.0 |
| Minority Interest | 0.00 | 0.00 | 0.00 | - | - |
| Net Profit | 635 | 313 | 376 | (40.8) | 20.2 |
| Net profit bef Except. | 749 | 352 | 487 | (35.0) | 38.2 |
| EBITDA | 1,163 | 806 | 933 | (19.8) | 15.7 |
| Margins | |||||
| Gross Margins (%) | 15.0 | 10.8 | 12.4 | ||
| Opg Profit Margins (%) | 9.4 | 4.3 | 6.1 | ||
| Net Profit Margins (%) | 9.2 | 4.9 | 5.6 |
Source: DBSVTH, Company
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