<Results Analysis> Stellar 2021, Upbeat 2022 guidance

  • Another record quarter with strong gross margins of 52.7%
  • Gross margin to inch higher towards 53-55% in 1Q22; Guiding for higher revenue growth and capex ahead
  • Raising FY22/23F earnings forecasts by 10-16% 
  • Preferred pick for semiconductors; TP lifted to NT$860 / US$140  

4Q21 beat expectations. 4Q21 revenue grew 5.8% q-o-q to US$15.74bn, exceeding its guidance of US$15.4-15.7bn, following record high monthly revenue during the seasonally lower Dec (+4.8% q-o-q). Management attributes the strong performance to strong demand in 5G, HPC, IoT and Automotive.

Gross margin was also strong, coming in at 52.7%, at the upper end of its guidance of 51-53%, while operating margin of 41.7% exceeded its upper-end guidance of 41% in the seasonally low period in 4Q. This demonstrates not just the strong demand for ICs across the board, but also TSMC’s cost improvements. 

On full year basis, revenues and EBIT grew 18.5% and 14.7% to NT$1,587.4bn and NT$650bn in FY21, in line with our expectations.  Net profits grew 15.2% y-o-y to NT$596.5bn, on 37.6% profit margin.

Upbeat guidance.

Management is optimistic that the strong momentum can be sustained. Going into 1Q22, management guided revenue increase of 5-9% q-o-q to US$16.6-17.2bn, and expect revenue growth to accelerate to mid-to-high 20s for the full year. Management expects 15-20% revenue growth for next few years. Gross margins could inch higher towards 53%-55% in 1Q22. Management reiterated its longer-term gross margin guidance of >53% driven by high utilization rate, price hike, cost improvements and ramp up and development of advanced technology. Operating margins for 1Q22 is also expected to expand to 42%-44%.

We raised our FY22/23F earnings by 10-16%, factoring in the stronger growth. 

Promising secular uptrend

Management reiterated its positive view that the semiconductor industry is entering a period of higher structural growth spurred by the multiyear megatrends of 5G, IoT, Automotive and HPC-related applications, leading greater demand for higher computational power and silicon content. TSMC is raising its capital expenditure budget by almost one-third to US$40bn-44bn for FY22 to further expand its capacity at a faster pace.

Additionally, due to the persistent supply shortages of ICs and Covid-19 induced supply chain disruptions, customers are increasingly preparing for higher inventory levels to ensure consistent and stable supply of ICs as reflected in the increasing trend of long-term agreements (LTAs). This could also mean that TSMC’s ASP would likely have already been fixed for 2022 and probably even 2023, in our opinion.

Encouraging N3 ramp up.  

TSMC’s N3 is on schedule to begin volume production in 2H22. Management has indicated that the first year take up rate for N3 is much faster than it was for its N5 during the first year. The faster ramp up could also shorten the usual lead time of 7-8 quarters for new capacity to reach the average corporate gross margin.