Analyst Note| Phelix Lee |
We raise our fair value estimate on TSMC to TWD 760 per share, or USD 136 per ADR due to better prospects in high-performance computing, or HPC, and automotive markets, underpinned by the firm's aggressive capital expenditure plans. Our fair value estimate corresponds to 33.6 times 2021 P/E. We think the multiple is justified by a stronger EPS outlook by capturing potential cutting-edge HPC orders from Intel, higher confidence in widening technology leadership through 3nm and later process nodes, and leveraging the current shortage to migrate automotive customers to less-tight 12-inch capacity. Spending was budgeted at USD 25 billion-USD 28 billion for 2021, over 50% higher than 2020, 80% of which is spent on cutting-edge nodes like 3nm and 5nm process technologies. We think this lends credence to market talk regarding Intel outsourcing cutting-edge processors to TSMC; in addition to organic growth in artificial intelligence, data analysis and other HPC applications.