Hua Hong Grace shares plunged 11.5 percent after Jefferies flagged weak third-quarter revenue guidance. Jefferies maintained its Hold rating but raised the target price from HKD91 to HKD140 on faster-than-expected gross margin recovery. Short selling reached $1.36 billion at a 19.26 percent ratio.
Hua Hong Grace shares plunged 11.5 percent after Jefferies said the chipmaker's third-quarter revenue guidance missed expectations, despite raising its target price to HKD140.
Jefferies maintained its Hold rating on Hua Hong Grace, lifting the target price from HKD91 to HKD140, the firm said in a research note. The brokerage cited faster-than-expected gross margin recovery as the driver behind the higher target.
The company's second-quarter revenue met expectations, while gross margin and EBIT exceeded forecasts on higher average selling prices and cost control measures. Net profit missed expectations because other income came in lower than anticipated. Jefferies raised its 2026-2027 gross margin forecasts by 3.8 percentage points but left revenue projections largely unchanged.
The stock fell 17.000 points to close down 11.549 percent, with short selling reaching $1.36 billion at a 19.26 percent ratio. The guidance shortfall raises questions about demand in mature-node semiconductor manufacturing, where intense competition and overcapacity continue to pressure profitability.
The third-quarter revenue guidance shortfall comes as Hua Hong Grace navigates a challenging environment for mature-node foundry services. The company competes with SMIC and other Chinese foundries for capacity in 28nm and above process nodes, where pricing pressure has intensified as multiple players expand capacity. Hua Hong Grace's focus on specialty processes such as embedded memory, power management, and analog chips differentiates it from pure-play logic foundries, but the broader mature-node segment remains oversupplied.
Jefferies' gross margin forecast revision reflects expectations that average selling prices will hold up better than previously anticipated. The target price increase of more than 50 percent from HKD91 to HKD140 shows confidence in the company's cost structure even as top-line growth faces headwinds. The firm left revenue forecasts largely unchanged, suggesting the margin recovery is the primary driver of the valuation uplift.
The heavy short selling activity, with $1.36 billion in short positions representing 19.26 percent of turnover, indicates bearish positioning among traders. The stock's 11.5 percent decline on the day suggests the market is pricing in a more cautious outlook for the remainder of the year. The selloff also weighed on sentiment across Hong Kong-listed semiconductor names, as investors reassess the demand outlook for mature-node capacity.
For holders, the key question is whether the gross margin recovery can offset weaker revenue growth. The company's next earnings report will provide clarity on whether third-quarter guidance was conservative or reflects genuine demand softness in mature-node manufacturing. Jefferies' raised target price implies the brokerage sees the margin recovery as sustainable, but the market's reaction suggests investors remain skeptical about near-term revenue momentum.
This article is for informational purposes only and does not constitute investment advice.
