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1、,115.00,99.20,3.0,22,Company report,Telecoms,Media&TechnologySemiconductorsEquity Taiwan,abcGlobal Research,TSMC(2330 TT/TSM US),OverweightTarget price(TWD)Share price(TWD)Forecast dividend yield(%)Potential return(%)Note:Potential return equals the percentagedifference between the current share pri
2、ce andthe target price,plus the forecast dividend yieldDec 2011 a 2012 e 2013 eHSBC EPS 5.18 6.37 7.50HSBC PE 19.2 15.6 13.2,OW:Raise TP;still more reasons to be positive 2013 consensus too low;controlled inventories andquarterly linearity suggest better than consensus 1H13 Increasing Apple visibili
3、ty a notable tailwind into 2014 Raising forecasts/TP to TWD115(TWD98 prior)on unchd3.1x PB;however,now applied on mid-2014 book value tointegrate more of the Apple impact within our valuation;OW,Performance,1M,3M,12M,Absolute(%)Relative(%),0.80.0,13.49.1,31.720.5,Post“beta bounce”,whats next?Much of
4、 Asia tech enjoyed 15%(to as much 70%)beta,bounces in the last 2-3 months.Our strategy now is to retreat back into secular stories that stillhave upside to consensus.TSMC fits both as:1.)a key enabler in the paradigm shift to mobile;and 2.)current 2013 consensus revenues of+13%y-o-y are far too low
5、with the CEOs recentsuggestions that+15-20%was more likely.We believe managements confidence is based on acombo of controlled inventories,tech leadership extending market share dominance,and anability to flatten the pricing curve,as well as increasing Apple visibility.,17 January 2013Steven PelayoRe
6、gional Head of Technology ResearchThe Hongkong and Shanghai BankingCorporation Limited+852 2822.hkLionel Lin*Junior Technology AnalystThe Hongkong and Shanghai BankingCorporation Limited,Singapore Branch+65 6658.sgView HSBC Global Research at:http:/*Employed by a non-US affiliate of HSBCSecurities(U
7、SA)Inc,and is notregistered/qualified pursuant to FINRAregulationsIssuer of The Hongkong and Shanghaireport:Banking Corporation LimitedDisclaimer&,4Q12 likely inline.2013 consensus heading higher.Reported 4Q12 revenues(-7%q-o-q)were at the high end of guidance,thus op margins may also reach the high
8、 end(33-35%),implying EPS TWD1.60-1.65(versus our forecast of TWD1.57).We expect a better-than-seasonal start to the year and forecast 1Q13 revenues to decline 4%q-o-q and further note thequarterly linearity to support the CEOs suggestion of as much as 20%y-o-y growth likelyimplies another 15-20%q-o
9、-q revenue growth in 2Q13.While some clients expressed concernthat TWD appreciation,annual pricing negotiations,and increased 4x/2x competition maypressure margins,we believe fully loaded 28nm capacity(about 25%in 1Q13)will be atcorporate average gross margins in 1Q13(versus 4Q12s low 40s)and help t
10、o mitigate.Wefurther believe TSMC is leveraging its leading edge position to maintain its higher margin/fullydepreciated more mature nodes.Incorporating Apple into our valuation.While todays valuation is not particularly cheap,webelieve controlled inventories,upside to consensus and increasing visib
11、ility on Apple remainpositives.We dont like to rely on expanding target multiples to justify higher target prices,butwe do believe Apple will be a notable contributor to 2014 thus at least partially be incorporatedinto todays valuation.Hence,in addition to increases to our forecasts,we also set our
12、new oneyear target price based on unchanged 3.1x PB applied to a mid-2014 book value.,DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,Financials and valuationRevenue Cons revenue2012e 506,2
13、49 505,8112013e 602,995 573,1152014e 705,214 664,651Source:Company data,HSBC estimates.,EPS6.377.509.00,Cons EPS6.406.997.80,P/B3.6x3.1x2.6x,ROE24.5%25.1%25.6%,Div yield3.0%3.0%3.0%,TSMC(2330 TT/TSM US)Semiconductors17 January 2013Financials&valuationFinancial statements,Valuation data,abc,Year to,1
14、2/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Profit&loss summary(TWDm),EV/sales,5.7,4.9,4.1,3.5,RevenueEBITDADepreciation&amortisationOperating profit/EBITNet interestPBT,427,081249,239-107,682141,5573,591145,148,506,249310,552-131,300179,252804180,056,602,995373,37
15、0-157,778215,5921,000216,592,705,214439,539-177,964261,5741,000262,574,EV/EBITDAEV/ICPE*P/Book valueFCF yield(%)Dividend yield(%),9.84.919.24.11.43.0,8.04.015.63.61.73.0,6.73.313.23.12.63.0,5.62.811.02.64.83.0,TaxationHSBC net profit,-10,695134,201,-14,854165,262,-21,659194,733,-28,883233,491,Note:*
16、=Based on HSBC EPS(fully diluted),Cash flow summary(TWDm),Price relative,Cash flow from operationsCapexCash flow from investmentDividendsChange in net debtFCF equity,247,587-213,963-182,523-77,78743,48735,013,288,049-246,372-243,046-77,79665,88442,722,337,396-273,000-273,000-77,84424,36064,396,399,4
17、25-280,000-280,000-77,844-39,924119,425,1261161069686,1261161069686,Balance sheet summary(TWDm),7666,7666,Tangible fixed assetsCurrent assetsCash&othersTotal assetsOperating liabilities,514,546225,260150,622774,26593,731,628,800235,088140,257922,88799,041,744,197262,235152,2861,071,55698,040,846,258
18、309,293184,2131,227,436100,916,562011Taiwan SemiconductorSource:HSBC,2012 2013Rel to TAIWAN WEIGHTED INDEX,562014,Gross debt,48,490,104,010,140,398,132,400,Net debtShareholders fundsInvested capital,-102,132629,594495,453,-36,248719,836624,589,-11,888833,118756,106,-51,812994,120870,423,Note:price a
19、t close of 16 Jan 2013,Ratio,growth and per share analysis,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Y-o-y%change,RevenueEBITDAOperating profitPBTHSBC EPS,1.80.9-11.1-14.8-17.0,18.524.626.624.123.1,19.120.220.320.317.8,17.017.721.321.219.9,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating pr
20、ofit margin,1.029.522.317.658.433.1,0.929.424.519.461.335.4,0.928.125.119.561.935.8,0.928.625.620.362.337.1,EBITDA/net interest(x),Net debt/equityNet debt/EBITDA(x),-16.2-0.4,-5.0-0.1,-1.40.0,-5.2-0.1,CF from operations/net debtPer share data(TWD),HSBC EPS(fully diluted)DPSBook value,5.183.0024.28,6
21、.373.0027.76,7.503.0032.11,9.003.0038.31,2,TSMC(2330 TT/TSM US)Semiconductors17 January 2013Still more reasons to bepositive Retreat to structural stories with upside to consensus post 15-70%beta bounce in Asia Tech stocks 4Q12 inline;we see upside to existing 2013 consensus Not exactly cheap but co
22、ntrolled inventories,upside to consensusand 2014 Apple opportunity remain positives,abc,TSMC fits our criteria with a strongstructural story and upside toconsensus.The past 2-3 months have been good for the AsianTechnology sector;most tech stocks had benefitedfrom“beta bounces”and risen 15%to as muc
23、h as70%during this period.Post the sector rally,weadvise investors to retreat back into secular stories,gross margins in the 45-50%range through 2013,especially as management has already confirmedthat 28nm gross margins will no longer be a dragon corporate average margin this year.Finally,weestimate
24、 the revenue opportunity from Apple willhelp TSMC add another 8-10%to its total revenue(see tables below)next year.Die size,yield and shipment assumptions,that still have upside to consensus.We viewTSMC as one of the few selected companies withthose two criteria.Firstly,TSMC is the keyenabler in the
25、 paradigm shift to mobile(roughlyhalf of its revenue is exposed to thecommunications segment)and will likely benefitas smartphones continue their ramps in 2013.Welike the company for its dominance(50%marketshare in the foundry market)and extendingtechnology leadership(leading edge 28nmrevenue to 20%
26、of total revenue expected in,AssumptionsSilicon die and waferProcess nodesilicon area per unitgross die/waferYield assumptionNet die/waferApple APU shipment estimatesTotal iPhones shippedTotal iPads shippedTotal A6/A7 shipmentSource:HSBC Estimates,2013E28nm9565780%526175m100m275m,2014E20nm9069180%55
27、3200m125m325m,4Q12 versus single-digits at its peers).We believeTSMC is“being paid”for its leading edgetechnology as noted by some of its customerswhen they suggested the company was“flatteningthe pricing curve”;this will likely helpcompensate for lofty capex/sales and help sustain3,2014E,TSMC(2330
28、TT/TSM US)Semiconductors17 January 2013Apple app processor opportunities to foundries2013E,Scenarios of TSMCs quarterly revenue linearity suggests flattish1Q/4Q13 and massive q-o-q growths in 2Q/3Q13 needed forrevenue to grow 20%y-o-y in 2013,abc,Total incremental wafers for foundriesTSMCs allocatio
29、n from Apple,523,21210%,587,91650%,TSMC(TWDm),1Q13E 2Q13E 3Q13E 4Q13E,2012,2013E,Consensus,Total incremental wafers for TSMC,52,321,293,958,Revenue,124,178 142,031 157,261 149,645 506,249 573,115,Sequentials,-5.3%14.4%10.7%-4.8%18.5%13.2%,12-wafer ASP(USD)estimates,5,500,6,500,Scenario 1,Revs attrib
30、uted to TSMC(USDm),288,1,911,Revenue,131,806 151,577 166,735 166,735 506,249 616,852,Sequentials,0.0%15.0%10.0%0.0%18.5%21.8%,Cons TSMC total revs(USDm),19,660,22,740,Scenario 2,%of Apple revs/Total revenuesSource:HSBC Estimates,1.5%,8.4%,RevenueSequentials,125,216 150,259 165,285 165,285 506,249 60
31、6,044-5.0%20.0%10.0%0.0%18.5%19.7%,Note:we are assuming only 10%allocation for full year 2013,with 30%exiting the year,Scenario 3,RevenueSequentials,125,216 150,259 172,798 164,158 506,249 612,430-5.0%20.0%15.0%-5.0%18.5%21.0%,4Q12 inline;we see upside to 2013consensus.Previously reported 4Q12 reven
32、ue declined 7.1%q-o-q,at the high-end of its guidance and inlinewith estimates,thanks to the continued ramp in28nm(revenue likely growing 60%q-o-q).Webelieve TSMCs op margins may reach the highend of its guidance of 33-35%;implying that itsEPS will be greater than TWD1.60-1.65(versusour forecast of
33、TWD1.57).We view consensus for a+13%y-o-y revenuegrowth in 2013 as too low and expect estimates torise over the next few weeks.In fact,Chairmanand CEO Dr.Morris Changs commented at arecent supplier day that+15-20%revenue growthwas more likely.We agree and expect 2013 revenue growth to startbetter-th
34、an-seasonal,forecasting 1Q13 revenue todecline 4%q-o-q.We note the quarterly linearityto support Dr.Changs comments(see tablebelow)likely implies another 15-20%q-o-qrevenue growth in 2Q13.As such,we believeconsensus for 2013 is too low and will need to beadjusted upwards.,Source:Company data,HSBC es
35、timatesNot cheap,but controlled inventories,consensus upside and Appleopportunity are all positives.TSMC shares currently trade at 3.1x our ending2013e book value and are not particularly cheap.However,we believe there are limited otheralternatives in the Asian Tech space for investorsto shift funds
36、 and we believe the theme ofconcentration will continue to help TSMCsshares.Further,investors are likely rewarding thecompany with its higher-than-peer book value of3x+for its consistent 20%+ROEs and dividend ofTWD3 per shareSo what do we worry about?TSMC shares are not particularly cheap and fundfl
37、ow concentration into a few tech names has onlyincreased as supply chain fears lead to an exodusof the traditional Apple plays.With QFIIownership levels at record highs,TSMC sharesclearly benefitted.If there is any broad-based techrally,TSMC may underperform from both lowerbeta and as a potential so
38、urce of funds.Whileconsensus is too low today,we believe the bar,will rise over the next quarter or so we may begina climb of the wall of worry.So as long as the2x node and Apple stories continue(which we4,3-Jan-13,3-Jan-05,3-Jan-06,3-Jan-07,3-Jan-08,3-Jan-10,3-Jan-11,3-Jan-12,3-Jan-09,80.0%,TSMC(23
39、30 TT/TSM US)Semiconductors17 January 2013expect),we feel our 7%above consensus EPS for2013 is safe.In the medium and longer term,moreintense competition from Samsung(005930 KS,OW,TP KRW1,900,000),Global Foundries andmaybe Intel,in addition to continued lofty capexto sales(40%,in our view)to support
40、 Appleramp,EUV and 450mm transitions may pressureperceptions in a year or two.TSMCs QFII holding of 78%at record high,Also,we know the company is currently trading at13x of our 2013e EPS of TWD7.50.Our 1-yearTP of TWD115 equates to the same 13x PEmultiple on 2014e EPS of TWD9 which is 15%above conse
41、nsus.In addition,we also employ a longer-term DCFmodel to justify TSMCs valuation.Based on asensitivity analysis using a 7.8%hurdle rate and aterminal growth rate of 3%;our DCF model,abc,points to a fair value range of TWD114-119,which is inline with our target price of TWD115.70.0%TSMC:Cash flow ta
42、ble,60.0%50.0%Source:TEJ.,TSMC QF II holding,(TWDm)Revenuey-o-yOp cashflowDepreciationCapexy-o-yFree cashflowOCF marginFCF margin,2012e506,24918.5%288,049131,300246,37215.1%41,67756.9%8.2%,2013e602,99519.1%337,396157,778273,00010.8%64,39656.0%10.7%,2014e705,21417.0%399,425177,964280,0002.6%119,42556
43、.6%16.9%,2015e775,73510.0%443,475190,502271,507-3.0%171,96857.2%22.2%,2016e760,220-2.0%426,841203,865304,08812.0%122,75356.1%16.1%,Valuation and risks,Capex/sales 48.7%Source:Company data,HSBC estimates,45.3%,39.7%,35.0%,40.0%,While we admit valuation is difficult,we attempt,to employ different tech
44、niques to try to justifywhat the fair value for TSMCs shares will be.We,TSMC:DCF sensitivity analysis table,Terminal Growth,concluded that our current target multiple of 3.1xbook is a fair one as it is below the 3.8x peak,andwithin a more narrow 3-3.5x range seen in muchof the last 5-6 years.However
45、,we decided to,WACC,7.50%7.70%7.90%8.10%8.30%,2.75%$119.8$114.8$110.2$105.9$101.9,2.85%$121.6$116.4$111.6$107.2$103.1,3.00%$124.5$119.0$114.0$109.3$105.1,3.15%$127.5$121.7$116.4$111.6$107.1,include the first half of 2014 in the time period forour valuation so as to account for the incrementalrevenue
46、 from Apple and also the likely moreprofitable 28nm node as it continues to ramp.Hence,our new target price of TWD115(TWD98prior)is based on 3.1x book applied to mid 2014(ending 2Q14e),in order to reflect TSMCsdifferent capital structure(more low cost debttaken on)and also Apples app processor order
47、sopportunity(we estimate TSMC will get roughly50%of Apples order allocation in 2014).,Note stock price in TWDSource:Company data,HSBC estimatesUnder our research model,for stocks without avolatility indicator,the Neutral band is 5ppt aboveand below the hurdle rate for Taiwan stocks of9.5%.Our target
48、 price implies a potential return of16%(including 2013e DPS of TWD3);thereforewe reiterate our OW rating.Potential return equalsthe percentage difference between the currentshare price and the target price,including theforecast dividend yield when indicated.,5,TSMC(2330 TT/TSM US)Semiconductors17 Ja
49、nuary 2013Our ADR(TSM.N,CMP USD17.89)target isalso raised to USD20.7(USD17.64 prior)basedon an 8%premium to the local shares and aTWD30/USD1 exchange rate;which implies anOverweight rating as well.Downside risks include worsening end demand,margin pressures from potential excess capacity,price compe
50、tition,technology mix,higherdepreciation/capital intensity,entry into newmarkets,and/or increased competition.6,abc,TSMC(2330 TT/TSM US)Semiconductors17 January 2013TSMC:Changes to quarterly estimates_ 4Q12e _ _ 1Q13e _,abc,(TWDm)Revenueq-o-q%Gross Margin(%)Operating ProfitOp Margin(%)Net ProfitEPS(
