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Taiwan Semiconductor Manufacturing Co Ltd ADR TSM

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Morningstar’s Analysis

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TSMC Guidance Signals Strong High-End Semiconductor Demand. FVE Upped to TWD 990 per Share.

Phelix Lee Equity Analyst

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.

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Company Profile

Business Description

Taiwan Semiconductor Manufacturing Company, or TSMC, is the world's largest dedicated chip foundry, with over 58% market share in 2020 per Gartner. TSMC was founded in 1987 as a joint venture of Philips, the government of Taiwan, and private investors. It went public as an ADR in the U.S. in 1997. TSMC's scale and high-quality technology allow the firm to generate solid operating margins, even in the highly competitive foundry business. Furthermore, the shift to the fabless business model has created tailwinds for TSMC. The foundry leader has an illustrious customer base, including Apple, AMD and Nvidia, that looks to apply cutting-edge process technologies to its semiconductor designs.

No. 8, Li-Hsin Road 6, Hsinchu Science Park
Hsinchu, 300-78, Taiwan
T +886 35636688
Sector Technology
Industry Semiconductors
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 56,831