Analyst Note| Phelix Lee |
We lift our fair value estimate on Taiwan Semiconductor Manufacturing, or TSMC, to TWD 990 per share (USD 179 per ADR) due to increases in five-year revenue CAGR to 16.5% from 14.3% and up to 1.5 percentage points change in gross margin assumptions. These changes mainly stem from MediaTek’s entry into the premium chipset in 2022, a stronger pipeline of high-performance computing, or HPC, and demand and increasing certainty from autonomous driving thereafter. Hence, we see fears of slowing smartphone and PC shipments as minor grievances held by the bear camp. In our December 2021 special report “For Asian Foundries, Chip Shortage May Turn Into a Glut in 2024,” we discussed how new applications in automotive and Internet of Things struggle to fill industry capacity. In the case of TSMC, we believe its superior offerings in the 7nm to 28nm processes can retain customers in case of a downturn. TSMC is trading at 24 times 2022 P/E and 7 times 2022 price/book, a similar multiple to three months ago with lower estimated sales CAGR, meaning the stock is an even more solid buy in our view.