Shares of Hua Hong Semiconductor Limited (HKG:1347) surged 5.19% on Thursday, outperforming the broader market, as a recent valuation analysis suggested that the stock may be undervalued at current levels.

According to a discounted cash flow (DCF) analysis by Simply Wall 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, which is widely used in equity valuation, 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 may vary, 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.