<News Alert> 4Q23 results beat guidance; expects revenue growth of c.20% in 2024
- TSM’s revenue decreased slightly by 1.5% y-o-y in 4Q23 to US$19.62bn while earnings were down 79.1% y-o-y due to margin contraction, but still ahead of the market expectations
- Management’s guidance for 10% y-o-y revenue increase at the midpoint in 1Q24, in line with the market consensus
- Expect TSM to resume growth and expand its margin in 2024 driven by the end-market recovery and specification upgrade of chips. Maintain BUY with TP of TWD 643.6.
Both 4Q23 earnings beat the market expectations; 1Q guidance in line
TSM’s topline continued to recover, driven by the resurgence of end-demand from smartphones. The group generated 4Q23 revenue of US$19.62bn, down only 1.5% y-o-y (up 13.5% q-o-q), ahead of the management guidance and market expectations. Gross margin came in at 53.0%, down 9.9ppt y-o-y (vs.54.3% in 3Q23). GAAP earnings per ADR of US$1.44, was down 79.1% y-o-y (up 11.6% q-o-q), ahead of the market expectations. In 1Q24, TSM expects sales to be c.US$18.0bn to US$18.8bn, up 7.7% to 12.4% y-o-y, in line with the market expectations. The gross margin is expected to be slightly lower, landing between 52% to 54%, continuously impacted by the dilution in the early stages of new 3nm production. For the full year 2024, revenue is expected to grow at least 20% y-o-y.
Growth resumption from end-market demand
TSM’s order demand has improved continuously due to rising demand in the consumer electronics end-market, particularly for smartphones. As the only foundry massively manufacturing 3nm chips and planning to start 2nm mass production in 2025, TSM is well-positioned to capitalize on the smartphone recovery driven by the replacement peak and innovative features such as AI. The premiumization trend in smartphones and the increasing use of AI in consumer electronics and generative AI are also expected to drive the specification upgrade of chips and boost demand for advanced node foundry services. We foresee both top line and margin continuing to grow, driven by these factors. TSM also expects capital expenditure to increase to US$28bn to US$32bn in 2024, vs about US$30bn in 2023. It is moving ahead with plans for chipmaking plants in Japan, Arizona and Germany, with Japan to begin mass production at the end of 2024. We maintain our BUY recommendation for TSM, setting a target price (TP) of TWD 643.6 (US$10.0 per ADR).