Shares of Hua Hong Semiconductor Limited (HKG:1347), a leading semiconductor company, surged 13.44% on Thursday, October 18th, 2024, as investors reacted positively to a valuation analysis suggesting the stock may be significantly undervalued at current levels.
According to a discounted cash flow (DCF) analysis by SimplyWall St, Hua Hong Semiconductor's fair value estimate stands at HK$38.24 per share, implying a potential upside of around 45% from its current share price of HK$21.20. The DCF model, a widely used valuation technique, calculates the present value of a company's projected future cash flows to arrive at an estimate of its intrinsic value.
The analysis incorporates various assumptions, including future cash flow projections, a discount rate of 10% based on the company's levered beta, and a terminal growth rate of 2.3% derived from the 5-year average of the 10-year government bond yield. While these assumptions are subject to change, the significant gap between the estimated fair value and the current share price suggests that the market may be undervaluing Hua Hong Semiconductor's potential, according to the report.
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