Taiwan Semiconductor Manufacturing Company Limited

TSM Details

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is a semiconductor foundry that specialises in the creation of masks and the manufacture, sales, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices.

Q1FY22 Results:

• Improvement in Revenue: TSM's net revenues in Q1FY22 (ended March 31, 2022) were NTD 491.08 billion, up 35.50% from NTD 362.41 billion in Q1FY21. The growth was Supported by strong HPC and Automotive-related demand.
• Margin expansion: During the quarter under consideration, gross margin improved by 2.9% to 55.6% from 52.4% in the same quarter of the previous financial year. Primarily because of continued cost control efforts deployed by the company.
• Rise in Net Income: In Q1FY22, the company's net income was NTD 202.87 billion, an improvement from NTD 166.37 billion in Q1FY21, reflects a jump of 45.1% on a YoY basis, driven by decent topline performance and margin expansion.
• Increase in EPS: The company reported an EPS of USD 0.28 in Q1FY22 vs. USD 5.39 in Q1FY21.

Key Risks:

• Customer Concentration Risk: As of September 30, 2021, December 31, 2020, and September 30, 2020, the company's top 10 largest clients accounted for 80%, 79%, and 82% of accounts receivable, respectively. The company's financial position may be harmed in the long run if it is overly reliant on a few clients for revenue.
• Cyclical Industry: The electronics and semiconductor industries are cyclical, with significant variations in product demand, which can impact semiconductor foundry operations. As a result, any downturn or significant impact on semiconductor economic conditions could negatively impact the company's cash flow and revenues.

Outlook:

Q2FY22 Guidance (Source: Earnings Presentation, Q1FY22)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 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 15.74% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 96.91 to USD 145.00. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 119.83.

Considering the correction in the stock price, strong fundamentals, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 99.375, down 0.11% as of April 20, 2022, at 08:24 AM PDT.

Three-Year Technical Price Chart (as on April 20, 2022, at 08:24 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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.