Taiwan Semiconductor Manufacturing Company Limited

TSM Details

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) is a Taiwanese semiconductor company that produces, sells, packages, tests, and develops machine-aided integrated circuits (ICs) and other semiconductor devices, as well as masks. It was established in 1987 and is the world's leading specialty foundry in the semiconductor sector. It works with famous clients such as Apple and Nvidia, and it strives to use cutting-edge process technology in its semiconductor designs. TSM has 5.19 billion American Depository Shares (ADS) listed and outstanding, with each ADS representing five common shares.

Latest News:

• Dividend Declaration: TSM declared a cash dividend of TWD 2.75 on November 09, 2021, and scheduled March 22, 2022, as the record date for common stock stockholders, with the ex-dividend date for common shares being March 16, 2022. ADSs will also have an ex-dividend date of March 16, 2022. Accordingly, the record date for ADSs eligible to receive this cash dividend payout is March 17, 2022.
• Establishing a new Technology Fab: TSM and Sony Semiconductor Solutions Corporation (SSS), a Japanese device solutions manufacturer, jointly announced on November 09, 2021, that the company would establish a subsidiary, Japan Advanced Semiconductor Manufacturing, Inc. (JASM), in Kumamoto, Japan, to provide foundry service with initial technology of 22/28-nanometer processes to address global solid market demand for specialty technologies, with SSS participating as a minority shareholder.

9MFY21 Results:

• Boost in Revenue: TSM's net revenues during 9MFY21 (ended September 30, 2021) were TWD 1,149.23 billion, up 17.54% from TWD 977.72 billion during 9MFY20.
• Rise in Net Income: During 9MFY21, the company's net income was TWD 430.70 billion, an improvement from TWD 375.33 billion during 9MFY20.
• Robust Balance Sheet: As of September 30, 2021, the company's cash and cash equivalents (government bonds and financial assets) amounted to TWD 989.76 billion, and the total debt (including borrowings, bonds payable, and finance leases) was TWD 605.18 billion

Key Risks:

• Customer Concentration Risk: The company's top ten largest clients accounted for 80%, 79%, and 82% of accounts receivable as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively. Such over-reliance on a few clients for revenue may harm the company's financial position in the long run.
• Cyclical Industry: The electronics and semiconductor industries are cyclical, with substantial fluctuation in product demand, which may impact semiconductor foundry operations. As a result, any downturn or significant effect on semiconductor economic circumstances might hurt the company's cash flows and sales.

Outlook:

• Q4FY21 Estimates: TSM expects its Q4FY21 sales to be between USD 15.4 and USD 15.7 billion (assuming USD 1 = TWD 28.0), with a gross profit margin of 51% to 53%, and an operating profit margin of 39% to 41% as of October 14, 2021.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(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.

TSM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

TSM's share price has surged 27.28% in the past twelve months and is currently trading above the mid-point of the 52-week range of USD 95.30 to USD 142.20. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 67.94. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 134.98.

Considering the company market dominance, positive cash flows, new technology foundry, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 123.36, up 3.61% as of November 18, 2021, at 2:22 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Vishay Intertechnology, Inc.

VSH Details

Vishay Intertechnology, Inc. (NYSE: VSH) produces one of the world's most comprehensive portfolios of discrete semiconductors and passive electronic components, which are critical to innovative designs in the automotive, industrial, computing, consumer, telecommunications, medical and other allied markets. Based on product functionality, it is divided into six segments: MOSFETs (metal-oxide-semiconductor field-effect transistors), diodes, optoelectronic components, resistors, inductors, and capacitors. As of November 18, 2021, the company's market capitalization stood at USD 3.12 billion.

Latest News:

• New & Improved Product Offerings: VSH announced on November 18, 2021, that the lead times for its IHLP, a low profile, high current inductors, will stay constant and competitive at 10 to 16 weeks. In addition, the firm is currently experiencing no shortages of its IHLP products due to increased productivity and capacity development.

Further, VSH also launched a new commercial IHSR high-temperature inductor on November 17, 2021. The Dale IHSR-2525CZ-51, designed for multi-phase, high current power supplies and filters, offers a 50% decrease in DC resistance over standard power inductors, has inductance stability throughout the operating temperature range and is mildly saturated compared to ferrite alternatives.

9MFY21 Results:

• Boost in Topline: The company reported an increase of 30.67% in net revenues to USD 2.40 billion during 9MFY21 (ended October 02, 2021) from USD 1.83 billion during 9MFY20 (ended October 03, 2020) due to an increase in demand and manufacturing capacities.
• Surge in Net Income: VSH recorded a massive increase in net income to USD 262.11 million during 9MFY21 vs. USD 85.94 million during 9MFY20.
• Healthy Balance Sheet: As of October 02, 2021, the company had cash and cash equivalents (including short term investments) of USD 915.94 million and total debt of USD 454.85 million.

Key Risks:

• Supplier Concentration Risk: The majority of the raw materials used by VSH are manufactured by a small number of suppliers across the world. As a result, the company's operating performance may be impacted if it has difficulty procuring certain raw materials in sufficient quantities, if their quality is subpar, or if suppliers raise their costs.

Outlook:

• Q4FY21 Estimates: The company stated in its Q3FY21 statement that it expected its Q4FY21 revenues to range between USD 805 and 845 million, with a gross margin of 27.7% (+/- 50 basis points) assuming Q3FY21 exchange rates.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(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.

VSH Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

VSH's stock price has surged 11.62% in the past month and is currently trading close to the mid-point of its 52-week range of USD 18.07 to USD 26.50. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 65.78. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 25.33.

Considering the current trading levels, improved topline and bottom-line performance, continuous product launches, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 21.51, down 0.23% as of November 18, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.