China’s No 2 chip maker seeks fresh buy-back mandate amid stock slump while Shanghai lockdown disrupts production

  • Stock has declined 31 per cent this year, underperforming the broader Hong Kong market
  • Chip maker seeks to boost capacity after generating record sales and earnings in 2021 amid a global supply shortage

Hua Hong Semiconductor, China’s second-biggest chip maker, is seeking to implement a stock buy-back programme and raise fresh capital to fund a capacity expansion as the firm battles production hurdles caused by a lockdown in Shanghai.

The firm will ask shareholders to approve a plan to repurchase as much as 10 per cent of its capital, or the equivalent of about 130 million shares, according to a stock exchange filing, joining a slew of Chinese tech companies including bigger rival Semiconductor Manufacturing International Corp (SMIC) in buy-back plans.

Hua Hong’s shares have slumped 31 per cent this year in Hong Kong, adding to a 2.8 per cent loss last year. An extended lockdown in Shanghai, its production base, has clouded its operations after a record earnings in 2021.

Inside a Hua Hung Semiconductor factory.

The chip maker has separately proposed to also list its shares in Shanghai through a secondary public offering on the Star Market of up to 25 per cent of its enlarged share capital, according to a late-March announcement. That could generate up to HK$9.7 billion (US$1.2 billion) to grow its main business, based on the stock price on Thursday.

Hua Hong’s expansion plan comes at a time when China is doubling down on a self-sufficiency drive for chips, amid rising tech tensions with the US and as America and Europe also boost their onshore semiconductor production prowess.

The chip industry is facing an acute shortage in supply globally after the pandemic upended logistics and supply chain systems. China’s imports of semiconductors fell 4.6 per cent in the first two months from a year earlier, the first decline since early 2020. China’s integrated circuit output also fell 1.2 per cent.

Meanwhile, Hua Hong is striving to maintain its production capacity in Shanghai. Like its peers SMIC and Taiwan Semiconductor Manufacturing Co, companies are calling back staff to live within their facilities to keep their machines running amid movement curbs.

Zhang Suxin, chairman of Hua Hong, said in an internal meeting last week that the company is under “strict closed-loop management” to ensure chip supply to clients. The company has urgently called back “necessary personnel” to its dormitories, according to mainland Chinese media reports.

The company grew its sales by 70 per cent last year to US$1.63 billion while earnings surged 163 per cent to US$261.5 million. Both were the highest since at least 2011, according to its annual reports.

Author: Ann Cao, SCMP

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