Hua Hong Semiconductor : Reports 2021 First Quarter Results

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Stock Code (1347)

News Release

Hua Hong Semiconductor Limited

Reports 2021 First Quarter Results

All currency figures in this report are in US Dollars unless indicated otherwise. The consolidated financial statements are prepared in accordance with HKFRS.

Hong Kong Special Administrative Region of the People's Republic of China - May 13, 2021.

Hua Hong Semiconductor Limited (SEHK: 1347) (the "Company"), a global, leading pure-play foundry, today announced its consolidated operational results for the quarter ending March 31, 2021.

First Quarter 2021 Highlights (Unaudited)

• Revenue reached an all-time high of US$304.8 million, 50.3% over the prior year and 8.8% above the prior quarter.
• Gross margin was 23.7%, 2.6 percentage points above 1Q 2020 and 2.1 percentage points below 4Q 2020.
• Net profit was US$20.9 million, versus US$2.7 million in 1Q 2020 and US$28.2 million in 4Q 2020.
• Net profit attributable to shareholders of the parent company was US$33.1 million, compared to US$20.3 million in 1Q 2020 and US$43.6 million in 4Q 2020.
• Basic earnings per share was US$0.025, versus US$0.016 in 1Q 2020 and US$0.034 in 4Q 2020.
• ROE (annualized) was 5.2%, 1.6 percentage points over 1Q 2020 and 2.0 percentage points lower than 4Q 2020.

Second Quarter 2021 Guidance

• We expect revenue to be approximately US$335 million.
• We expect gross margin to be in the range of 23% to 25%.

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President's Message

Mr. Junjun Tang, President and Executive Director of the Company, commented on the results of the first quarter of 2021:

"Our performance for the first quarter of 2021 was extraordinary! Driven by strong demand for virtually all platforms, in particular NOR flash, MCU, IGBT, and CIS, revenue reached US$304.8 million, an increase of 50.3% compared to the same period last year and 8.8% above the previous quarter, well above our revenue guidance and street consensus. Gross margin was 23.7%, 2.6 percentage points above Q1 2020, largely attributable to improved capacity utilization, better product mix, and increased overall selling price, and 2.1 percentage points below Q4 2020, primarily due to payout of a company- wide bonus prior to Chinese New Year. Net profit was US$20.9 million."

"Let me give you an update on the status of our 12-inch fab in Wuxi, that has shown amazing progress. Revenue contribution from the new fab was US$54.6 million in Q1 2021, representing 17.9% of total revenue, an increase of 53.1% quarter over quarter. Currently, monthly capacity in this new facility is 40,000+ wafers and the fab has been fully loaded. Because of strong demand, we expect this fab will continue to perform in this fashion into the future. For this reason, last year we accelerated our capacity expansion plan. We will reach 65,000 wafers per month by the end of this year and fully expect to reach 80,000+ wafers per month by mid 2022. Management is confident about our continued growth, mainly based on the following facts: 1) our capacity is rapidly expanding; 2) our research and development team continues to deliver competitive platforms; and 3) global semiconductor demand, particularly in China, will expand for decades."

Mr. Tang concluded: "Hua Hong Semiconductor continues to be very excited about our mission to be a leading specialty technology provider for the global semiconductor industry! We are in a very exciting time and I believe 2021 will be a special year for the company. This will be a year of strong growth, and our team is committed to achieving another major milestone!"

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Webcast/Conference Call Announcement

Date: May 13, 2021 (Thursday)

Time:04:00 P.M. (Shanghai and Hong Kong)

04:00 A.M. (New York, Thursday, May 13, 2021)

Presenters: Mr. Junjun Tang, President and Executive Director

Mr. Daniel Wang, Executive Vice President and Chief Financial Officer

Webcast: The call will be webcast live with audio and slides at:

http://www.huahonggrace.com/html/investor_webcast.phpor

https://edge.media-server.com/mmc/p/upfrzavp

(Note: registration is required to access the webcast.)

Dial-in Details: Mainland China	400 820 9615 or 800 820 7535
Hong Kong, China	+852	3018 6768
Taiwan, China	+886	2 7703 1751
Singapore	[phone]
United States	[phone]
Conference ID: 5265449

A recording will be available at http://www.huahonggrace.com/s/investor_webcast.phpfor replay about 24 hours after the event and will be valid for 12 months.

About the Company

Hua Hong Semiconductor Limited ("Hua Hong Semiconductor", stock code: 1347.HK) (the "Company") is a global, leading pure-play foundry with specialty process platforms uniquely focused on embedded non-volatile memory ("eNVM"), power discrete, analog & power management, and logic & RF. Of special note is the Company's outstanding quality control system that satisfies the strict requirements of automotive chip manufacturing. The Company is part of the Huahong Group, an enterprise group whose main business is IC manufacturing, with advanced "8+12" production line technology.

The Company presently operates three 8-inch wafer fabrication facilities within the Huahong Group (HH Fab1, HH Fab2, and HH Fab3) in Jinqiao and Zhangjiang, Shanghai, with a total monthly 8-inch wafer capacity of approximately 180,000 wafers. The 12-inch wafer fabrication facility (HH Fab7), with a 40,000 12-inch wafer per month capacity in Wuxi's National High-Tech Industrial Development Zone, supports applications in emerging areas, such as the Internet of Things, using the "IC + Discrete" technology platforms. It has become a leading 12-inch semiconductor production line devoted to specialty processes in the Chinese mainland and is the first 12-inch foundry in the world devoted to power discrete semiconductors.

For more information, please visit: www.huahonggrace.com.

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Summary of Operating Results

(Amounts in US$ thousands, except for EPS and operating data)

	1Q 2021	1Q 2020	4Q 2020	YoY	QoQ
	(Unaudited)	(Unaudited)	(Unaudited)	Change	Change
Revenue	304,843	202,854	280,094	50.3 %	8.8 %
Cost of sales	(232,685)	(160,132)	(207,825)	45.3 %	12.0 %
Gross profit	72,158	42,722	72,269	68.9 %	(0.2)%
Gross margin	23.7 %	21.1 %	25.8 %	2.6	(2.1)
Operating expenses	(59,502)	(71,462)	(61,134)	(16.7)%	(2.7)%
Other income net	7,121	20,043	24,493	(64.5)%	(70.9)%
Profit before tax	19,777	(8,697)	35,628	(327.4)%	(44.5)%
Income tax credit / (expense)	1,148	11,442	(7,421)	(90.0)%	(115.5)%
Profit for the period	20,925	2,745	28,207	662.3 %	(25.8)%
Net profit margin	6.9%	1.4 %	10.1 %	5.5	(3.2)
Attributable to:
Owners of the parent	33,059	20,314	43,609	62.7 %	(24.2)%
Non-controlling interests	(12,134)	(17,569)	(15,402)	(30.9)%	(21.2)%
Earnings per share attributable to
owners of the parent
Basic	0.025	0.016	0.034	56.3 %	(26.5)%
Diluted	0.025	0.016	0.033	56.3 %	(24.2)%
Wafers shipped	669	463	628	44.5 %	6.5 %
(in thousands 8" equivalent wafers)
Capacity utilization1	104.2 %	82.4 %	99.0 %	21.8	5.2
ROE2	5.2 %	3.6 %	7.2 %	1.6	(2.0)

First Quarter 2021

• Revenue reached an all-time high of US$304.8 million, 50.3% over the prior year, primarily driven by increased demand for CIS, MCU and discrete products, and 8.8% above the prior quarter, mainly driven by increased demand for NOR flash and discrete products.
• Cost of sales was US$232.7 million, 45.3% above 1Q 2020 and 12.0% over 4Q 2020, mainly due to increased wafer shipments, depreciation, and labor costs.
• Gross margin was 23.7%, 2.6 percentage points above 1Q 2020, primarily driven by improved capacity utilization, better product mix, and increased average selling price, and 2.1 percentage points lower than 4Q 2020, mainly due to increased depreciation and labor costs, partially offset by improved capacity utilization and increased average selling price.
• Operating expenses were US$59.5 million, 16.7% below 1Q 2020, mainly due to decreased research and development costs, and 2.7% below 4Q 2020.
• Other income net was US$7.1 million, 64.5% lower than 1Q 2020, mainly due to decreased government subsidies and fair value gains on financial assets, and 70.9% lower than 4Q 2020, primarily due to foreign exchange loss versus foreign exchange gain and decreased share of the profit of associates.
• Income tax credit was US$1.1 million, compared to US$11.4 million in 1Q 2020, due to decreased reversal of dividend withholding tax accrued for the prior year and increased taxable profit.
• Profit for the period was US$20.9 million, versus US$2.7 million in 1Q 2020 and US$28.2 million in 4Q 2020.
• Net profit attributable to shareholders of the parent company was US$33.1 million, compared to US$20.3 million in 1Q 2020 and US$43.6 million in 4Q 2020.
• Basic earnings per share was US$0.025, versus US$0.016 in 1Q 2020 and US$0.034 in 4Q 2020.
• ROE (annualized) was 5.2%, 1.6 percentage points over 1Q 2020 and 2.0 percentage points lower than 4Q 2020.

1The capacity utilization is calculated based on average monthly equivalent wafers output divided by total estimated monthly capacity. 2Profit attributable to owners of the parent / weighted average net assets attributable to owners of the parent.

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Operating Results by Segment

(Amounts in US$ thousands, except for operating data)

	1Q 2021	1Q 2020	4Q 2020	YoY	QoQ
	(Unaudited)	(Unaudited)	(Unaudited)	Change	Change
Hua Hong 8"
Revenue	250,196	200,572	244,390	24.7 %	2.4 %
Gross profit	68,194	42,320	69,963	61.1 %	(2.5)%
Gross margin	27.3 %	21.1 %	28.6 %	6.2	(1.3)
Operating expenses	(32,528)	(29,098)	(15,983)	11.8 %	103.5 %
Profit before tax	44,540	27,157	67,061	64.0 %	(33.6)%
EBITDA	82,883	60,036	98,193	38.1 %	(15.6)%
EBITDA margin	33.1 %	29.9 %	40.2 %	3.2	(7.1)
Wafers shipped	541	460	544	17.6 %	(0.6)%
(in thousands 8" wafers)
Hua Hong Wuxi
Revenue	54,647	2,282	35,704	2,294.7 %	53.1 %
Gross profit	3,964	402	2,306	886.1 %	71.9 %
Gross margin	7.3 %	17.6 %	6.5 %	(10.3)	0.8
Operating expenses	(26,974)	(42,364)	(45,151)	(36.3)%	(40.3)%
Profit before tax	(24,763)	(35,854)	(31,433)	(30.9)%	(21.2)%
EBITDA	9,688	(22,800)	(4,426)	(142.5)%	(318.9)%
EBITDA margin	17.7 %	(999.1)%	(12.4)%	1,016.8	30.1
Wafers shipped	128	3	84	4,166.7 %	52.4 %
(in thousands 8"equivalent wafers)

Hua Hong 8"

• Revenue was US$250.2 million, 24.7% over 1Q 2020 and 2.4% above 4Q 2020.
• Gross margin was 27.3%, 6.2 percentage points over 1Q 2020, primarily due to increased average selling price, improved capacity utilization, and better product mix, and 1.3 percentage points lower than 4Q 2020, mainly due to increased labor costs, partially offset by increased average selling price.
• Operating expenses were US$32.5 million, 11.8% over 1Q 2020, mainly due to increased depreciation and labor expenses, and 103.5% above 4Q 2020, primarily due to the recognition of certain government grants in Q4 2020.
• Profit before tax was US$44.5 million, 64.0% over 1Q 2020 and 33.6% lower than 4Q 2020.

Hua Hong Wuxi

• Revenue was US$54.6 million, versus US$2.3 million in 1Q 2020 and US$35.7 million in 4Q 2020.
• Operating expenses were US$27.0 million, 36.3% lower than 1Q 2020 and 40.3% below 4Q 2020, mainly due to decreased development costs, partially offset by decreased government grants for research and development.
• EBITDA was plus US$9.7 million for the first time.

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