Bank of America Securities has raised its target price for Hua Hong Grace (01347) to 69 Hong Kong dollars from 63 Hong Kong dollars, extending the valuation base to 2027. The firm maintains its "underperform" rating, citing the stock's high valuation.

The bank noted that the company reported second-quarter sales of 718 million U.S. dollars, up 9% quarter-over-quarter and 27% year-over-year, slightly exceeding the upper end of the company's guidance and the bank's expectations. Gross margin expanded to 16.5%, beating the guided range of 14% to 16%. The operating margin turned positive to 1.5% for the first time since the fourth quarter of 2023. Net profit rose 85% quarter-over-quarter to 39 million U.S. dollars, with earnings per share of 2.2 U.S. cents, in line with expectations.

Bank of America Securities observed that Hua Hong Grace's average selling prices are recovering, estimating a quarter-over-quarter increase of about 5% in wafer prices for the third quarter. This outlook is broadly similar to other Asian mature process foundries but slightly below the bank's earlier forecast of a high single-digit percentage increase. The bank expects a modest price recovery trend to continue into next year. However, given the rising depreciation cost pressure, the bank anticipates that the company's margins and profitability will not see significant improvement next year.