A Bright Future Is Waiting for HANA

Hana Microelectronics Public Company Limited (HANA) reported a net profit of 301 million baht in 1Q21, a 48% increase year-on-year, due to lower exchange loss offsetting lower operating profits in the quarter. Normal profit was 413 million baht, down 19% year-on-year, due to lower GPM and higher SGA.   

Sales revenue in USD terms increased 17% to USD 172 million. Overall, every HANA’s business units have performed better in the last quarter, particularly autos, computers, and consumers.

Gross profit margin contracted to 11.9% in 1Q21 (from 15.4% in 1Q20) because of product mix and Thai baht strength.   

 

DBS Vickers Securities (DBSVS) believes that demand for IC will continue strong, and HANA proposes to boost manufacturing capacity by 25-30% in the Ayutthaya field and by 20% in the China factory in 2H21. The output from the expansion will be ready in 2H21 to support the semiconductor industry’s growth trajectory.

The primary concern is a scarcity of raw materials. According to the company’s executive, this issue has had a limited impact on operations thus far. However, the future remains uncertain. HANA has altered lead times for raw material purchases and is actively monitoring the situation in order to avoid being adversely affected by this circumstance.

The gross margin is expected to improve during the rest of the year as a result of 1) the weakening baht and 2) altering the product mix in 2H64 by increasing the proportion of higher margin products.

HANA is now developing a new product, Silicon Carbide SiC, which has the potential to grow at a breakneck pace. Because it is utilized in a variety of products, including electric vehicles and chargers, consumer electronics, high-end televisions, and white goods. If the new product succeeds in gaining popularity, it has the potential to enhance GPM in the medium- to long-term.

HANA also benefited from the trade war between the United States and China. As it operates manufacturing plants in Thailand, China, the United States, and Cambodia.

 

Recommendation – Maintain a “BUY” recommendation with a target price of 65.50 baht per share, based on the 2022 P/E ratio at 22x.