Taiwan Semiconductor Manufacturing Company Limited

TSM Details

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is a semiconductor foundry that specializes in mask fabrication, as well as the production, sales, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices.

Latest News:

• Dividend Announcement: The TSMC Board of Directors has approved an NTD 2.75 cash dividend for the fourth quarter of 2021, with the ex-dividend date set for June 16.

Q1 FY22 Results:

• Significant Improvement in Revenue: Strong HPC and Automotive-related demand helped boost the company's revenue to USD 17.57 billion (NTD 491.08 billion) in Q1 FY22, up 36% year over year and 11.6% from the prior quarter.
• Robust Margins: The company's operating margins in Q1 FY22 were 45.6%, significantly higher than the industry median and most significant quarter net margin of 41.3%, owing to its continuing efforts to market its value and reduce costs.
• Bottom Line Performance: The company's net income in Q1 FY22 was NTD 218.28 billion, up 44.5% from NTD 145.71 billion in Q1 FY21.
• Liquidity Position: The rise in total current assets was primarily attributable to an NTD 93.60 billion increase in cash and marketable securities. In Q1 FY22, net working capital was NTD 899.37 billion, with a current ratio of 2.1x.
  

Key Risks:

• Customer Concentration Risk: In 2019, 2020, and 2021, the main revenue from the ten largest clients amounted to almost 71%, 74%, and 71% of net income, respectively. A more concentrated customer base will expose revenue to seasonal demand swings from major clients, resulting in various company seasonal patterns.

Q2 FY22 Outlook:

• Revenue Estimate: The revenue forecast is between USD 17.6 billion and USD 18.2 billion.
• Expected Margins: The gross profit margin is estimated to range from 56 to 58%. Operating profit margins are estimated to range from 45 to 47%.
  

Valuation Methodology: EV/Sales Price Multiple based Relative Valuation

Source: Refinitiv, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

TSM's stock price has fallen 24.67% in the past three months and is leaning towards the lower of its 52-week range of USD 145.00 to USD 85.39. We have valued the stock using the EV/Sales Price multiple-based relative valuation methodology and arrived at a target price of USD 107.40.

Based on the improved top line and bottom line, high margins, solid balance sheet, associated risks, and present value, we recommend a "Hold" rating on the stock at the current market price of USD 90.73, up 0.57% as of May 20, 2022, as at 08:05 AM PDT.

TSM’s 1 Year Technical Price Chart (as of May 20, 2022, at 08:15 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.