HUA HONG SEMI (01347) experienced a significant drop in its stock price, plummeting 5.06% during Tuesday's trading session. This sharp decline came despite a substantial target price increase from CCB International, highlighting the complex factors influencing investor sentiment in the semiconductor sector.

CCB International released a research report that raised HUA HONG SEMI's target price by 46%, from HK$50 to HK$73. The increase was primarily attributed to the potential acquisition of Hua Hong's fifth fab, which is expected to enhance the company's return on equity (ROE) upon completion in 2026. However, the same report also downgraded the stock's rating from "Outperform" to "Neutral," citing concerns about the current high valuation relative to ROE levels. This downgrade appears to have overshadowed the positive aspects of the report, leading to the significant sell-off.

Interestingly, data from the Stock Connect program showed an increase in HUA HONG SEMI's shareholding ratio by 0.71% to 23.17%, indicating some continued interest from mainland investors. However, this modest increase in shareholding was not sufficient to counteract the negative impact of the rating downgrade. The market's reaction underscores the weight investors place on analyst ratings and valuations, even in the face of potential long-term growth prospects.