Company Reports

We retain our fair value estimate for Win Semiconductors of TWD 245 as we believe a milder increase in the second half of 2024 will follow the upbeat first-quarter performance. Win Semi is undervalued, in our view, as the market remains unconvinced of a smartphone recovery and is focusing on competitor expansion in the near term rather than structural growth in optical components demand. Win Semi’s mediocre balance sheet may be improved disproportionately amid China’s smartphone recovery, triggering a rerating in the stock.

We retain our fair value estimates on Taiwanese technology companies in our coverage following a powerful earthquake and multiple strong aftershocks near the eastern city of Hualien on April 3, namely: Advantech at TWD 337; Delta Electronics at TWD 331; GlobalWafers at TWD 710; Largan at TWD 3,000; MediaTek at TWD 1,400; Sino-American Silicon at TWD 281; Taiwan Semiconductor Manufacturing Co at TWD 950 (USD 151 per ADR); United Microelectronics Corp at TWD 70; and Win Semiconductors at TWD 245 per share.

We retain our fair value estimate of TWD 245 for Win Semiconductors after we pushed back revenue contribution from the now-paused Kaohsiung cluster by a year and factored in a modest contribution from optical components. Even though we have significantly cut 2025-27 forecasts, our unchanged fair value estimate reflects our view that the Kaohsiung cluster will eventually be a large contributor in the long term. Win Semi is undervalued in our view as the market seems to be reassessing the extent of smartphone recovery, and is overly concerned about intensifying competition. We believe improving smartphone-related data, and the resumption of the Kaohsiung cluster works are key catalysts to the share price.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts more than 70% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business. Base stations and other infrastructure products make up the second-largest group.

We hold our fair value estimates on MediaTek and Win Semiconductors at TWD 1,400 and TWD 245, respectively, after tweaks to our 2023 and 2024 estimates. We view inventory clearance has ended at both companies, and they will benefit from new launches from smartphone manufacturers. Both stocks are attractive in our view, as smartphone recovery has just begun and 5G proliferation should resume after a year of pause. Artificial intelligence is another bonus if it accelerates innovation on smartphones and other devices that attract consumers to replace their gadgets more frequently. MediaTek's and Win Semi's minimal exposure to a softening automotive market makes them good diversification targets against auto-heavy names in our coverage like Infineon and NXP.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts almost 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business. Base stations and other infrastructure products make up the second-largest group.

Our fair value estimate on Win Semiconductors is shaved 3% to TWD 245 after factoring in higher operating expenses and smartphone demand to be in slow recovery up to mid-2024. The stock remains attractive as smartphone recovery should help Win Semi climb back into operating profit in early 2024, and drive 2024-27 revenue to grow by 30% each year with help from satellite, autonomous driving, and artificial intelligence, or AI, application demand.

Our fair value estimate on Win Semiconductors is tapered to TWD 253, corresponding to 2024 adjusted P/E of 31 times chiefly on lower 2023 revenue and earnings forecasts. The stock is enticing to us amid early signs of a recovery starting from the second quarter. We think it is not too late as smartphone recovery has only just started, and the market remains skeptical of recovery over the next two to three quarters. The share price also does not seem to price in possible upside from satellite and autonomous driving.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts almost 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business. Base stations and other infrastructure products make up the second-largest group.

We stand by our fair value estimate on Win Semiconductors of TWD 258, corresponding to 2024 adjusted 31 times P/E. The effects of our more cautious forecasts up to 2026 are offset by lower 2023 capital expenditure and newly introduced 2027 estimates that factor in a full-year ramped-up contribution from the Kaohsiung cluster. The stock is enticing to us as we view the market could be too pessimistic on Win Semi’s delay in expanding capacity at the cluster. We think it is a good time to buy the stock to benefit from smartphone recovery from the second quarter, slightly higher visibility in satellite applications, and incremental value captured by newly released filters.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts almost 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business. Base stations and other infrastructure products make up the second-largest group.

We lower our fair value estimate on Win Semiconductors to TWD 258 after factoring in even weaker smartphone-related sales and a small market share loss following new capacity from a competitor. Our fair value estimate corresponds to 49 times 2023 adjusted P/E before normalizing in 2024 to 30 times. The stock looks appealing to us, as the current price seems to assume a no-growth scenario beyond 2025 even the company is steadfast in building the Kaohsiung cluster to address incremental non-smartphone demand. Valuation is at a five-year low in terms of price-to-book at 1.5 times. We see a reversal of smartphone sentiment in the first half of 2023 to be a catalyst for Win Semi.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts nearly 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts nearly 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business.

We trim our fair value estimate for Win Semiconductors to TWD 340 following guidance that points to longer-than-expected smartphone weakness, which drives our 2022 and 2023 forecasts significantly lower. The fair value estimate corresponds to 34 times 2023 adjusted P/E before normalizing in 2024 to 23 times. Our projections for 2024-2026 are slightly moderated to better account for risks in slower ramp-up in the Kaohsiung cluster. We see the risk-reward of Win Semi as even better as we estimate the share price implies either zero growth beyond 2026, or revenue won’t rebound to 2021 levels before 2026. We think sentiment is at rock bottom and any sign of rebound in smartphone demand can lead to outsize improvement in operating margin and hence the stock.

We trim our fair value estimate on Win Semiconductors to TWD 350 following disappointing guidance on the second quarter, and a more cautious view on the full-year outlook. Our fair value estimate corresponds to 37 times 2022 P/E and 25 times 2023 P/E. We also cut revenue and gross margin assumptions for 2022-26 to account for a cautious 5G infrastructure rollout, and less bullish estimates for mobile and Wi-Fi products. Despite these cuts, we still believe Win Semi is a prime beneficiary in long-term trends like 5G adoption, low-orbit satellite, autonomous driving, "Internet of Things" and 3D sensing applications. We think Win Semi is an attractive high-risk-high-reward play for investors willing to look beyond the currently tepid smartphone outlook.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts nearly 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business.

We cut our fair value estimate on Win Semiconductors to TWD 423 per share, corresponding to 32 times 2022 P/E (and 25 times 2023 P/E), because of the slightly lower revenue and midcycle margins due to the higher capital expenditure estimates up to 2025. Our lower revenue and gross margin forecasts reflect softer pricing in 5G and Wi-Fi products and higher depreciation expenses. However, we still regard shares as attractive because Win Semiconductors benefits from multiyear trends like nonsmartphone 3D sensing and low-orbit satellite, and investors can accumulate shares to gain such exposure. We believe the inclusion of Face ID on new Apple devices, some of which may be released as early as March, could lift sentiment in the stock. Further down the road, a ramp in lower-orbit satellite communications demand, continued 5G base station additions and non-iPhone 3D sensing applications could move the share price closer to our fair value estimate.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It boasts nearly 80% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business.

Win Semiconductors, or Win Semi, intends to secure its leadership in RF contract manufacturing by expanding capacity, developing GaAs improvements, selling new materials and exploring applications. It has an overwhelming 70% market share in GaAs foundries, with the next two largest peers at 10%-15% combined. The company has been successful in reducing reliance on mobile products, currently making up less than 40% of the business.