• Directory of Taiwan

U.S. brokerage upbeat about TSMC sales growth, raises target price

U.S. brokerage upbeat about TSMC sales growth, raises target price

A U.S.-based brokerage has raised its target price on shares in contract chipmaker Taiwan Semiconductor Manufacturing Co. (TSMC), with the securities house expressing optimism about sales growth momentum at TSMC over the next two years.

In a recent research note, the American brokerage said it expects TSMC to benefit from its efforts to develop chips for 5G applications and high performance computing devices, which will serve as a driver for the chipmaker's revenue growth.

The securities house said it has raised its target price on TSMC shares from NT$280 to NT$320 (US$10.32), while leaving an "overweight" rating on the stock unchanged.

On Friday, shares in TSMC, the most heavily weighted stock on the local market, rose 1.49 percent to close at NT$272.00, after hitting an early high of NT$272.50. TSMC's gains offset the downturn of the broader market, where the benchmark weighted index ended down 0.39 percent at 10,829.68 amid lingering global trade concerns.

The upturn pushed TSMC's market capitalization to a new high of NT$7.05 trillion at the close of Friday, up from NT$6.94 trillion a day earlier.

The local equity market did not open on Monday after a land warning was issued for typhoon Mitag.

The U.S. securities house said in the wake of emerging technology applications in 5G and high performance computing technologies, TSMC is expected to see double digit year-on-year revenue growth in 2020 and 2021.

TSMC is also likely to benefit from rising demand for 5G technology-related processors and data modems, with Chinese telecom equipment supplier Huawei Technologies Co. serving as one of the Taiwanese pure foundry operator's major clients in that particular technology, the securities house said.

The securities house said chips for 5G application use are expected to contribute about US$4.8 billion in revenue in 2020.

As for high performance computing technology, the brokerage said, TSMC is expected to see sales increase on the back of higher orders placed by clients like Advanced Micro Devices Inc. and solid demand from China, where an increased number of data centers will be set up.

In addition, the brokerage said, TSMC will see its efforts in advanced 7 nanometer technology continue to push up sales in 2020, estimating that revenue generated from the 7nm process will grow 36 percent from a year earlier and account for more than 30 percent of total sales next year.

The 7nm process is the latest technology for which TSMC has started commercial production in 2018. The company is also developing more advanced technologies with mass production of 5nm and 3nm processes scheduled to begin in 2020 and 2022, respectively.

The brokerage's research note echoed a recent research paper released by IC Insights that expressed optimism about TSMC's 7nm technology. IC Insights forecast that the 7nm process will account for 33 percent of TSMC's total revenue in the fourth quarter and 26 percent for 2019, compared with 9 percent for 2018.

IC Insights said on the back of rising demand for chips made using its 7nm process, TSMC expects to post a 32 percent increase in the second half of the year over the first half, more than three times the 10 percent growth anticipated for the semiconductor industry worldwide.

Looking ahead to 2020, the U.S. brokerage said TSMC is likely to have a global market share of more than 90 percent in 7nm technology, a lead over its peers that will help the company dominate the 5nm and 3nm processes over the next three years.

As TSMC has been keen to develop high-end technologies, the brokerage said, the chipmaker is expected to spend US$12 billion to US$13 billion in capital expenditure in 2020 and 2021, up from more than US$11 billion estimated for 2019.

Meanwhile, the brokerage said it has upgraded its forecasts for TSMC's earnings per share by 6 percent and 4 percent, respectively, to NT$16.16 and NT$17.9 in 2020 and 2021.