Taiwan Semiconductor Manufacturing Company Limited

TSM Details

Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) manufactures, sells, packages, tests, and designs machine-aided integrated circuits (ICs) and other semiconductor devices, as well as masks. It was founded in 1987 and is the world's most prominent specialized foundry in the semiconductor industry. It has a prestigious client base that includes Apple and Nvidia, and it seeks to apply cutting-edge process technology to its semiconductor designs. TSM has 5.19 billion American Depository Shares (ADS) listed and outstanding, with each ADS representing five common shares.

Fabrication of New Processors: On June 02, 2021, the company, along with NXP Semiconductors NV, a leading automotive processing company, announced the volume production of NXP's S32G2 vehicle network processor and S32R294 radar processors on TSM's advanced 16 nm FinFET process technology. These sophisticated processors will equip vehicles with powerful computing platforms.

H1FY21 Results: The company reported an 18.23% increase in net revenues to TWD 734.56 billion during H1FY21 (ended June 30, 2021) compared to TWD 621.30 billion during H1FY20, primarily due to a significant increase in revenue from the customers associated with smartphones and high-performance computing operations. Its net income also increased to TWD 274.22 billion in H1FY21 from TWD 237.96 billion during H1FY20. As of June 30, 2021, the company's cash and cash equivalents (including government bonds and financial assets) amounted to TWD 883.23 billion, and the total outstanding debt was TWD 575.91 billion.

Key Risks: As of H1FY21 and H1FY20 end, TSM's top 10 customers accounted for 78% of its accounts receivables. Such over-reliance on a few clients for revenue may harm the company's financial status in the long term. Moreover, the electronics and semiconductor markets are cyclical, with significant volatility in product demand that might influence the semiconductor foundry operations. Therefore, any downturn or substantial influence on the semiconductor economic conditions might harm the company's cash flows and revenues.

Outlook: TSM forecasts its Q3FY21 sales to be between USD 14.6 and USD 14.9 billion (assuming USD 1 = TWD 27.9), with a gross profit margin of 49.5% to 51.5% and an operating profit margin of 38.5% to 40.5%.

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 increased by 15.25% in the past nine months and is currently trading at a higher band of the 52-week range of USD 76.17 to USD 142.20. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 55.78. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 135.11. Considering the company market dominance, positive cash flows, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 121.23, down 1.51% as of September 15, 2021, at 1:58 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.

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