Taiwan Semiconductor
Manufacturing Co (TSM:NYSE)
27 August 2023
Recommendation:
BUY EXECUTIVE SUMMARY
[Ticker] Overview
Taiwan Semiconductor Manufacturing Company (TSMC) is a foundry business
within the semiconductor industry, headquartered in Taiwan. They act as the
Target Price Range $132.11
primary chip manufacturer for many high-profile clients including; Apple, Intel,
Last Close $85.31 Nvidia, and Qualcomm among others. This puts them at the heart of the thriving
Upside/Downside 54.86% semiconductor industry which is being propelled onwards and upwards by
exciting new opportunities in the AI, automotive, and high-performance
Enterprise Value $426.75B
computing sectors, to name a few.
Market Cap $444.63B
52-Week High $110.69 The company is a market leader in terms of manufacturing the highest tech
semiconductors including their newly launched 3nm wafers and are constantly
52-Week Low $59.43
at the forefront of research and development spending in order remain atop this
P/E (TTM) 15.38 pedestal. It sets them apart from other similar manufacturers and significantly
P/B (TTM) 3.95 reduces competition through very high barriers to entry and formidable
economies of scale. As a result, TSMC accounts for a staggering 56.4% of market
Dividend Yield 1.97%
share in the semiconductor foundry industry.
% TOT. RETURN [MONTH/YR]
STOCK INDEX In a relatively volatile and topical industry, TSMC’s share price on the NYSE has
been as high as $110.69 and as low as $59.43 in the last 52 weeks, however, we
1 Month -8.38% -5.18%
retrieved a DCF valuation of the share price to be $132.11 and we hence rate
6 Month -3.91% 4.24% TSMC as a BUY. Despite a forecasted 10% decline in revenues for 2023, we
envision improving global economic conditions, strong demand for the new n3
YTD 17.07% 11.50%
chip, and promising growth from the AI and automotive sector. This paints a
pretty picture for TSMC’s future financial performance and one that we want to
be invested in.
FULL-YEAR SALES ($MIL)
Full-YR
2019 $33.62B
2020 $42.08B
2021 $49.88B
2022 $71.13B
EARNINGS PER SHARE in $TN
2019 13.32
2020 19.97
2021 23.01
2022 39.20
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
BUSINESS DESCRIPTION
Overview
Based in Taiwan, Taiwan Semiconductor Manufacturing Company was the
first, and is the world’s biggest pure-play semiconductor foundry business.
They strictly prioritise manufacturing of chips and allow their clients to focus
on design and application of such products. They have a stronghold over the
semiconductor foundry market and ensure that they remain in such a
position through monumental research and development spending and
innovation that drives technology markets as we know them. They place
high importance on their intellectual property efforts to ensure their
technology is patented and protected, driving them further ahead of
competitors.
Business Drivers
TSMC revenues can be split in a variety of useful ways in order to better
understand the business, as well as the demographics they serve. In terms of
geographical representation, Taiwan purchases a large sum of TSMC chips
considering their size, however it is the United States that dominates their
revenues. Seen in graph 2.1 to the right, the USA massively outspends its
nearest counterpart, China. This can be primarily attributed to TSMC’s
largest clients being American based, such as Apple who constitute for
around 26% of all revenues in 2022.
Another important breakdown is within not only the size of the chip being
made, but what application it is ultimately used for, and these go hand in
hand. High performance computing as well as the smartphone industry
typically demand the majority of the smallest chips manufactured by TSMC.
They are the most technologically advanced within the product line and are
at the forefront of semiconductor technology around the world. Both these
sectors and node sizes make up the vast majority of TSMC revenues.
However, the larger chips are still very relevant to the business as they are
used more within the automotive industry, internet of things, and digital
consumer electronics. The automotive industry is one that TSMC promises
much growth for in the coming years and a promising revenue contributor
for the company’s future.
The company’s revenues are driven by the growth of the tech industry as a
whole and are well positioned to benefit from the dramatic rise of AI as well
as a booming electric vehicle market which are expected to grow at CAGRs
of 17.3% and 17.8% respectively over the next 7 years and are ever reliant
on the production of semiconductors.
1. https://www.statista.com/outlook/tmo/artificial-intelligence/worldwide#:~:text=Artificial%20Intelligence%20%2D%20Worldwid
e&text=The%20market%20size%20in%20the,US%24738.80bn%20by%202030.
2. https://www.fortunebusinessinsights.com/industry-reports/electric-vehicle-market-101678
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INDUSTRY AND COMPETITIVE POSITION
2.2 Industry Overview & Competitive Positioning
The main competitors TSMC faces are Globalfoundries, NXP semiconductors, and IBM. With TSMC's
current political feud against China, TSMC still stands in the lead of being the largest semiconductor
company. However, the political conflict may increase investor insecurity in TSMC’s stock which could cause
our investors to switch to other competitors. Furthermore, the recent Ukraine and Russia war combined with
the COVID-19 pandemic has decreased expenditure on smartphones by 11% in 2022. However, despite
these recent geographical issues, TSMC has a prosperous outlook with the implementation of 5g and AI
features, demand for smartphones will increase, hence, increasing TSMC’s sales for processors and
4-nanometer chips which are used in production by companies such as Apple. Furthermore, to combat
geographical feuds, TSMC has expansion plans of building a $40 billion (USD) chip factory in the US to
increase its diversification in production lines.
Supplier Power
TSMC uses basic raw materials such as silicon wafers in producing their integrated circuit units (wafers). Its
main suppliers are Formosa SUMCO Technology Corp of Taiwan, GlobalWafers of Taiwan, Shin-Etsu
Handotai of Japan, Siltronic AG of Germany, and SUMCO Corporation of Japan.
As the price has been increasing in 2018 onwards for wafers throughout the industry, it has directly
decreased TSMC’s gross margin profit as the cost to produce these circuits has increased. However,
TSMC's bargaining power is relatively high compared to its competitors due to its large purchasing power
and long-term relationship with its suppliers which provides security in getting its materials on time and
decreases the risk of supply disruptions. Furthermore, the consistent investments in its R&D, allow for future
ability to reduce its reliance on specific suppliers.
Buyer Power
As TSMC is one of the leading companies in the semiconductor industry as well as the concentrated nature
of the industry itself, it is difficult for other competitors to compete due to its highly established position in the
market with its supplier power and overall dominance in purchasing power, the firm sets up a high barrier to
entry for new firms as well, making the overall industry even tougher to enter. This allows TSMC to have a
high bargaining power with buyers such as Apple, Qualcomm and Nvidia.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INDUSTRY AND COMPETITIVE POSITION
2.2 Industry Overview & Competitive Positioning
Threat of Substitution
TSMC offers a multitude of products such as integrated circuits, and circuit packaging (all used in products
such as smartphones, computers, cloud servers, etc.) and is the main manufacturer of Nvidia's chips.
TSMC’s manufactured products are indispensable to other markets in the economy as they are key
components in producing other technological goods that consumers purchase daily. With TSMC’s high
investment in R&D and indispensable products, the threat of substitution is relatively low.
Threat of New Entry
The semiconductor industry faces a high barrier to entry for new firms currently. As the industry is highly
capital intensive and requires a significant investment in r&d, manufacturing facilities, equipment, and
supplies, this makes it difficult for new firms to enter without the sufficient capital in doing so. As TSMC is the
leading company in the semiconductor industry and has established suppliers, manufacturing facilities, and
long-term consumers the threat of new entry is not a threat to the company. However, there may be
insecurities in the firm in the future if Taiwan undergoes a harsh political feud or restrictions that may harm
its business operations, this may allow for other competitors and new firms to enter the industry and
overtake TSMC if political feud forces its operations to struggle.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
MANAGEMENT QUALITY & CORPORATE GOVERNANCE
Dr. C.C. Wei is the Chief Executive Officer and Vice Chairman of TSMC giving him over 5 years of tenure as CEO. Dr. C.C.
Wei was additionally, president and Co-Chief Executive Officer from November 2013 to June 2018. Dr. Wei served as
the Chairman of Taiwan Semiconductor Industry Association from 2017 to 2019. Wei has served in numerous other
executive and senior management positions since his joining of TSMC in 1998.
Before joining TSMC in 1998, he was a Senior Vice President of Technology at Chartered Semiconductor
Manufacturing Ltd. in Singapore and Senior Manager for Logic and SRAM technology development at
STMicroelectronics N.V. in Texas.
Wei is well educated holding a Ph.D. in electrical engineering from Yale University.
In terms of compensation Wei received a total yearly compensation of $20.03 million (USD) which is above the
average of other similar sized US companies (being 12.1 million USD). Additionally, his compensation has increased by
more than 20% over the past year. His compensation consists of 2.2% salary and 97.8% bonus (including stocks).
Mr. Wendell Huang is the Chief Financial Officer and Spokesperson TSMC. Huang joined TSMC in 1999 and has led
several significant corporate level finance projects. In his past two decades of service at TSMC, Mr. Huang has been
responsible for the management of the Finance Division. He has 4 years of tenure in his current position. Prior to
joining TSMC, Huang worked for ING Barings, Chase Manhattan Bank, Bankers Trust Company, Chemical Bank, and
Bank of Boston. Mr. Huang has more than 30 years of working experience in the field of finance.
In terms of education Huang holds an MBA from Cornell University.
His compensation currently sits at 3.4 million USD.
Dr. Wei-jen Lo is the Senior Vice President of Research and Development (R&D) at TSMC. Dr. Lo joined TSMC in 2004
and has held various senior positions within the company. Dr. Lo, over his 15 years has contributed significantly to the
company's development of advanced technologies, providing detailed and innovative solutions to customers' tough
technical challenges. Currently he leads a team that has earned a total 1,500 + patents globally, including around
1,000 US patents.
Prior to joining TSMC, Dr. Lo was Director of Technology Development and a Plant Manager with Intel Corporation's
Technology and Manufacturing Group, as well as serving as an assistant professor at a U.S. university, and working at
the Motorola Research and Development Lab, as well as the Xerox Microelectronics Centre.
In terms of education Dr. Lo received his B.S. degree in physics from National Taiwan University and his M.S. and Ph.D.
degrees in Solid State Physics and Surface Chemistry from University of California, Berkeley.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
MANAGEMENT QUALITY & CORPORATE GOVERNANCE
TSMC board of directors is well experienced with the average tenure being 6.3 years and average age being
73. The board consists of 10 members all of which hold a great range of experience and skills. 6 of the 10
board members are independent directors enabling TSMC to have a diverse group of professionals from
Taiwan, Europe and the US.
TSMC complies with relevant laws and regulations, financial transparency, timely disclosure of material and
maintaining integrity through their Audit and Risk Committee. The Audit and Risk Committee consists of all
independent directors.
TSMC’s largest shareholder is the National Development Fund (Taiwanese government) who own 6.4% of
the company. The funds key goal is to boost innovation, research, and economic growth within the country.
The company founder Morris Chang owns approximately 0.5% of the company.
The rest of TSMC’s is fairly dispersed with no shareholder coming close to this 6.4%.
17.29% of shares are held by institutions with Sanders Capital being the largest at 0.83%. The largest
mutual fund holder is American Balanced Fund at 0.46%.
Overall, TSMC has a diverse range of shareholders with the majority being retail investors.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INVESTMENT SUMMARY & FINANCIAL ANALYSIS
Key Forecasts
As of the second quarter results of 2023 for TSMC there have been some important revisions made to their
financial expectations for the year. With slower than previously thought economic recovery and a
substantial inventory backlog being cleared in the tech industry, TSMC have had to revise their 2023
revenue predictions to a 10% decrease year on year. Nevertheless, TSMC are still very likely to make a
substantial profit for the year and both the company and the market are confident about 2024’s recovery.
Within this overall 10% decline in revenue there is much promise coming from their automotive application
revenues which are predicted to attain nearly 45% YoY growth as TSMC rolls out more of their 5 nm wafers
to the automotive industry.
Important recent developments
In recent news, TSMC are ready to begin shipping out their new 3nm chip which is the smallest on the
market and in great demand for the high profile and high tech clients they serve. Apple are rumoured to
have ordered TSMC’s entire 3nm capacity for 2023 as the company will begin to apply the chip in new
smartphones and computer systems. The race for 3nm market dominance has been tight but TSMC seem
to have taken top spot over the threatening Samsung push. Another important confidence boost in their
competitive advantage has been that TSMC have won over the large clients of Nvidia and Qualcomm within
the last year on their 4nm chips outperforming those of Samsung’s1.
TSMC executives are also very bullish on the AI megatrend facing the market. They pose that the
technological demands of the rise in AI are well catered to by TSMC’s strengths and can envision a 50%
CAGR of Ai related revenues within the business (of which currently contribute 6%).
Another positive takeaway from 2023 thus far is the release of new software, by TSMC, that allows
customers working on advanced computer chips in the automotive industry to adapt to, take advantage of,
and use TSMC’s new technologies more quickly. This is said to make the previously far behind automotive
catered chips available sooner than ever and that even the N3 chipmaking (3nm) technology that is the
current state of the art tech, available in an ‘automotive-grade variant’ in 20252.
1. https://www.theregister.com/2023/07/18/samsung_tsmc_processor_plans/
2. https://www.reuters.com/business/autos-transportation/tsmc-aims-get-newest-chip-technology-into-cars-faster-2023-0
4-26/
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INVESTMENT SUMMARY & FINANCIAL ANALYSIS
TSMC Profitability compared to competitors:
TSMC’s year over year revenue comes down to 39%, where other competitors such as GFS, NXPI, and
IBM do not meet half of TSMC’s yoy revenue, where IBM has a -22%. This indicates that during the past 5
years TSMC has been able to prosper and earn a high revenue despite global political issues and global
disasters.
In terms of the other ratio multiples, TSMC’s EV/EBITDA ratio is 9.03 which indicates a healthy outlook for
their company’s cash earnings less non-cash expenses compared to its competitor, IBM which has a
EV/EBITDA of 22.93 which indicates that they may be overvalued and consumers are paying a costly
premium.
As there is a chance that TSMC will face future expenses due to global political issues and investor
insecurity, its EV/Sales currently is 2.92 which still sits between the recommended benchmark of 1-3x. In
terms of P/S, TSMC faces a higher ratio of 6.47 over competitors which indicates that the stock may be
overvalued, TSMC faces a higher ratio due to COVID-19 restrictions which lowered the amount of units it
could produce hence affecting overall revenue generated, as TSMC is the largest semiconductor
competitor, these restrictions had a stronger affect on its manufacturing process. On the flip side, TSMC’s
P/E ratio is 16.16 which is lower than the recommended 20-25, and is the lowest out of its competitors.
TSMC’s low price earnings ratio indicates that the stock is currently undervalued and the stock may
increase in the future. This is due to its political feud with China which have decreased confidence in
investors.
In terms of stability ratios, TSMC has a 0.6 debt-to-EBITDA ratio which is the lowest compared to its
competitors, with IBM having a ratio of 7.96, this is due to TSMC’s ability to pay off its debts efficiently as
well as earning a strong revenue in its YoY for the past 5 years.
Furthermore, TSMC’s profitability ratios is highly attractive with its net profit margin at 42.27% compared to
its competitors with IBM at 3.34% and GFS at 19.07%.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
VALUATION
Valuation method used for NYSE: TSM is a discounted cash flow model. Rationale for
using DCF model is due to company being able to generate free cash flow. Target price
for each scenario is based on the expected growth of TSM’s key drivers being from High
Performance Computing and Smartphone growth,
Bull Case: TSM is able to exceed production of chips relating to smartphones and high
performance computing by 25-35% and 7.5-8.6% respectively while the USD is
performing stronger relative to the Taiwanese Dollar
Base Case: TSM is able to meet up with demand regarding production of chips relating to
smartphones and high performance computing. The USD doesn’t appreciate or
depreciate against the Taiwanese Dollar
Bear Case: Unfavourable global events may prompt TSM to reduce their production of
chips in the short run along with the USD depreciating against the Taiwanese Dollar
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INVESTMENT RISKS
Key Risks:
Tensions between Taiwan and China:
Large-scale developments might spook investors, particularly those in the US, and could have an impact on their capacity to trade
with North America, which accounts for 68% of their income.
Significant investment away from Taiwan:
A $40 billion investment in US (Arizona) factories is scheduled to be completed in 2025. This date had been delayed from the
original date (2024) due to unions claiming the sight is unsafe and that TSMC has cut safety corners. A second fab in Arizona
capable of producing 3nm chips has also started construction with the completion date set on 2026. This two facilities combined
will have the ability to manufacture over 600,000 wafers per year. This investment is just one of the ways TSMC is trying to achieve
more geographic manufacturing flexibility so that it is less affected by geopolitical tensions.
A key problems however is that the US is attempting to lessen its reliance on outsourcing manufacturing to nations like Taiwan by
investing heavily in the establishment of new factories domestically and the advancement of technological research and
development.
In 2022 Congress passed the CHIPS and Science Act, which provides $52.7 billion to jumpstart domestic semiconductor
manufacturing. This shows the US is attempting to significantly reduce their reliance on Taiwan in the event that China was to
damage Taiwan’s production. Additionally, they are hoping to foster their own domestic supply so that US companies can have a
more secure chip supply.
TSMC will have access to this fund to develop their US operations however the US government is insisting that excess profits be
shared with the government.
Heavy reliance on Apple and other partners for generating revenue:
Apple accounts for more than 25% of TSMC’s revenue, thus making the company extremely reliant on limited customers.
Apple wants to have a secure chip supply line within the US as European and Japanese technology can’t be used due to it being
mature rather than cutting-edge technology. This places even greater pressure on TSMC to develop their US production; however,
construction delays and a lack of skilled US labour force is making this challenging.
Aside from Apple, TSMC is also heavily reliant on AMD who make up 9.2% of revenue, Intel 7%, Qualcomm 7.6%, NVIDIA 5.8%
showing how TSMC must cater to a limited number of revenue sources.
US to TWD exchange rate:
The US to TWD exchange rate is trading at 32.25 as of 30th Sep 2023. This value is on course to weaken again this month due to
foreign funds turning against the technology sector as well as risk sentiment deteriorating on the slower growth in China. However,
the Taiwan dollar is set to strengthen due to the stabilisation of China’s economy (who is the Taiwan's biggest trading partner). The
Taiwan Dollar is predicted to strengthen and according to the Bank of America should be trading at 31.7 versus the US dollar by
when the year ends. Due to TSMC settling most of their revenue in USD this strengthen could lead to a slight decrease in overall
revenue for the company.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INVESTMENT RISKS
Double Taxation:
A US Senate committee recently (Sep) passed a bill that would cut taxes on Taiwanese firms operating in the US. This legislation is
the first of its kind and addresses specifically Taiwan businesses who would undergo double taxation. This bill had support from
President Joe Biden as it helps the US achieve its goal of increasing chip manufacturing in the US. It would do this by cutting the tax
rate on Taiwanese companies such as TSMC’s US income by two-thirds. Although this will still mean some double taxation may be
in place this bill is a significant step towards enabling TSMC to have an easier, quicker and more profitable expansion and growth in
the United States.
Competition:
TSMC risks being beaten by rival Samsung in the manufacturing of 2nm chips who are also on their way to completing additional
US plants. Samsung is developing very aggressively and will “not settle to be No. 2” (Jon Taylor Samsung Corporate VP of fab
engineering). They are pursuing the goal of tripling their capacity of leading-edge manufacturing and targeting to make industry
leading 2-nanometer chips by 2025 and 1.4-nanometer by 2027. If Samsung can achieve their ambitious targets, it could “leapfrog
ahead of TSMC”. TSMC on the other hand plans to begin production of 2nm chips by 2025. However, a recent report by
TechNews.tw states that this date may have to be postponed to 2026 due to the overall deceleration in global semiconductor
demand. Another key player that could potentially surpass both TSMC and Samsung is intel who are targeting to realise their 20A
(2nm) chip by the first half of 2024. This chip is being released in an attempt to jump ahead of TSMC and Samsung Foundry.
Additionally, Intel have moved forward the manufacturing of their 1.8nm chip from 2025 to the 2 nd half of 2024. If this date
remains true it could lead to Intel having the most advanced node when it enters high-volume manufacturing in 2 nd half 2024.
Overall TSMC has significant competition and will need to continue developing and remain on schedule in order to remain the
world's leader in advanced chip manufacturing.
Sluggish economic growth and decreased consumer spending:
Sales have decreased, especially in the smartphone and high-end computer industries, as a result of the slower than anticipated
economic recovery and rising living expenses (particularly due to high interest rates). This can be seen in consumer spending and
its impact on companies such as Apple whose Quarterly revenue has decreased from 82.96 Billion in July 2022 to 81.8 Billion in July
2023. This 1.4% decrease in revenue in Apple who is TSMC’s largest partner does pose additional risk for TSMC in terms of demand
for their products and shows that spending is down for many of their key partners. Additionally, industry wide TSMC predicts a
low-single-digit decline for the smartphone market in 2023.
Insert footnotes in this space.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
ESG Development
ESG Development:
Social and Industrial Value Chain:
5,472 million USD expenditures just on r&d which is a 22.5% increase from 2022, they have a
100% patent approval rate in the US, higher than the other top 10 patent holders such as LG,
Apple, Toyota, and Microsoft which allows for a higher profit margin just from royalties and
more business opportunities to grant other companies rights to use TSMC’s inventions. TSMC
alone has generated over 300,000 job opportunities in Taiwan.
Environmental impacts:
TSMC is renowned for its committed engagement in reducing its overall externalities to
environmental impacts, they have earned multiple awards from Dow Jones Sustainability
Indices (DJSI) for the Dow Jones Sustainability World Index for the 22nd consecutive year and
MSCI ESG Indexes for MSCI ESG Research ‒ AAA Ratings.
TSMC has caused an indirect increase of GHG emissions by 10.8% from 2021 to 2022 through
their consumption of electricity, however, to reduce their GHG emissions, TSMC has increased
their expenditure on renewable energies to 970 GWh, which is a year-on-year increase of 47%.
This has directly reduced around 360,000 metric tons of GHG emissions and eliminated
NT$570 million in social cost of carbon.
Furthermore, TSMC launched the world's first water reclamation plant to recycle industrial
wastewater and has implemented a net-zero emission blueprint set to be complete by 2050,
this blueprint consists of expanding their resource recycling, and developing multiple
biodiversity strategies with Chairman Dr. Mark Liu personally engaged in ESG developments
and strategies.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
INVESTMENT SUMMARY & FINANCIAL ANALYSIS
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
Financials:
1. Revenue Build
2. Income Statement Assumptions
3. Balance Sheet Assumptions (Current Line Items)
4. Cash Flow Statement Assumptions
5. Income Statement Summary
Valuation:
6. WACC Calculation
7. DCF Calculation
8. DCF Sensitivity Table
APPENDIX 1: Revenue Build
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 2: Income Statement Assumptions
COGS modelled as % of revenue from FY23E onwards
Opex is modellted as % of revenue from FY23E onwards
R&D and SG&A are modelled as % of total opex. Breakdown of opex is consistent as in
FY22
Income Tax Expense is modelled at Taiwa’s corporate tax rate
https://taxsummaries.pwc.com/taiwan/corporate/taxes-on-corporate-income#:~:text=Th
e%20corporate%20income%20tax%20(CIT,rate%20in%20Taiwan%20is%2020%25.&t
ext=A%20non%2Dresident%20company%20is,income%20derived%20from%20Taiwa
n%20sources.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 2: Income Statement Assumptions
COGS modelled as % of revenue from FY23E onwards
Opex is modellted as % of revenue from FY23E onwards
R&D and SG&A are modelled as % of total opex. Breakdown of opex is consistent as in
FY22
Income Tax Expense is modelled at Taiwa’s corporate tax rate
https://taxsummaries.pwc.com/taiwan/corporate/taxes-on-corporate-income#:~:text=Th
e%20corporate%20income%20tax%20(CIT,rate%20in%20Taiwan%20is%2020%25.&t
ext=A%20non%2Dresident%20company%20is,income%20derived%20from%20Taiwa
n%20sources.
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 3: Balance Sheet Assumptions (Current Line Items)
Used Mizuho Securities equity research report released after Q2 2023 for current line
items in FY23E and FY24E. From FY25E onwards used average historic days to forecast
for current line items
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 4: Cash Flow Statement Assumptions
Model Capex to decline based on management mentioned that they plan to reduce their
capex in Q2 2023 Earnings Transcript
D&A is modeled as % of Capex
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 5: Income Statement Summary
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 5: Income Statement Summary
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 6: WACC Calculation
Risk free rate retrieved from US 10yr Government Bond
Debt Weight retrieved from Q2 Debt to Equity Ratio
Used Taiwan Corporate Tax Rate
Equity Risk Premium derived from NYU Stern Country Default Spread
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 7: DCF Calculation
Cash and Cash equivalents retrieved from Q2 Balance Sheet
Total Debt Retrieved from Q2 Balance Sheet
Taiwan Semiconductor Manufacturing Co
(TSM:NYSE)
APPENDIX NETWORK (EXAMPLE)
APPENDIX 8: DCF Sensitivity Table
