Analyst Note| Chokwai Lee, CFA |
We increase narrow-moat AirTAC’s fair value estimate to TWD 910 from TWD 750 after incorporating stronger guidance from management. However, we think the shares are not attractive at the current price as the market seems to extrapolate current strong demand trends into the future. We have already factored in a longer industry upcycle in our forecasts (versus the normal duration of 6-8 quarters) due to robust demand from diverse industries such as 5G, new infrastructure and smart city, with AirTAC’s revenue to see single-digit growth only in 2024. AirTAC’s current share price is close to our bull case fair value estimate of TWD 1,210, which has already imputed a five-year revenue CAGR of 24.2% and an average operating margin of 36.1%. As a comparison, in the past 10 years, the firm’s revenue CAGR was 16.1% with average operating margin of 27.9%. AirTAC is now trading at around 33.4 times 2021 P/E, at the high end of its historical trading range of 10 times to 40 times.