October 17, 2024 10:57 AM GMT M Update | --- | --- | --- | --- | --- | --- | --- | --- | --- | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|----------------- ...

Investment Rating - The report assigns an "Overweight" (OW) rating to TSMC with a price target of NT$1200.0 by June 2025 [4][11]. Core Insights - TSMC's 3Q24 results significantly exceeded expectations, with gross margin (GM) at 57.8%, surpassing the guidance midpoint of 54.5% and J.P. Morgan's estimate of 54.8% [1][2]. - The 4Q revenue guidance indicates a 13% quarter-over-quarter growth, which is better than the consensus estimate of 7% [2]. - Continued strong demand for AI is expected to drive growth in the coming years, with AI server demand already contributing to mid-teens of 2024 revenues [2][11]. - TSMC's capacity utilization for N5 and N3 processes is projected to be over 100% in 4Q24, contributing to the GM increase despite challenges from process conversions and power tariff hikes [2][11]. - The company anticipates a gradual recovery in non-AI segments by 2025, dispelling concerns about an imminent semiconductor cycle peak [2][11]. Summary by Sections Financial Performance - TSMC reported revenues of NT$760 billion for 3Q24, with a gross profit of NT$439 billion, resulting in a GM of 57.8% [9]. - The operating profit was NT$361 billion, with an operating margin (OPM) of 47.5% [9]. - Net profit reached NT$325 billion, translating to an EPS of NT$12.54, reflecting an 11% quarter-over-quarter growth [9]. Growth Drivers - The report highlights TSMC's strong position in AI accelerators and edge AI, supported by its advanced process technology and packaging capabilities [11]. - The anticipated capex for 2025 is expected to be higher than in 2024, indicating a commitment to support growth [2][11]. - TSMC's commentary on Intel outsourcing suggests potential for increased collaboration, as Intel may need to rely on TSMC for its manufacturing needs [2][11]. Market Outlook - The report expects a 5-8% uptick in TSMC's stock price in the near term due to strong results and positive guidance [8]. - Analysts anticipate a revision of EPS estimates upward by 7-8%, with FY24 consensus earnings projected to reach NT$45-46 levels [7].

Investment Rating - TSMC is rated **Overweight** with a price target of NT$1,280, representing a 24% upside from the current price of NT$1,035 [5] - The industry view for Greater China Technology Semiconductors is **In-Line** [5] Core Investment Thesis - TSMC's 3Q24 EPS was NT$12.54, 10% above the forecast, with a gross margin of 57.8%, significantly higher than the consensus estimate of 55% [2] - TSMC guided 4Q24 revenue to grow 13% Q/Q, exceeding the consensus estimate of 9% Q/Q, and expects full-year revenue growth of close to 30% Y/Y in USD terms [2] - The company plans to more than double its CoWoS capacity in 2025 to meet AI semiconductor demand, although it may still face challenges in fully meeting customer demand [3] - TSMC's gross margin is expected to sustain at 57-59% in 4Q24 due to high fab utilization, but 2025 margins may face headwinds from overseas fab dilution and rising electricity costs [3] Financial Performance - 3Q24 revenue was NT$759.7 billion, up 12.8% Q/Q and 39.0% Y/Y, beating both Morgan Stanley and consensus estimates [4] - Operating expenses (Opex) were NT$79.1 billion, representing 10.4% of revenue, lower than the consensus estimate of 10.8% [4] - Operating profit margin (OPM) reached 47.5%, up 494bps Q/Q and 577bps Y/Y, significantly above consensus estimates [4] AI Semiconductor Demand - TSMC believes AI demand is sustainable, citing internal adoption and strong customer interest [3] - The company's AI-related semiconductor business is expected to drive growth, with NVIDIA being a key customer contributing to higher margins [3] Valuation and Growth Outlook - TSMC's EPS is projected to grow from NT$42.19 in 2024 to NT$70.65 in 2026, with a P/E ratio expected to decline from 24.5x in 2024 to 14.7x in 2026 [5] - The company's ModelWare net income is forecasted to increase from NT$1,094 billion in 2024 to NT$1,832 billion in 2026 [5] Industry Coverage - The Greater China Technology Semiconductors sector includes key players such as TSMC, UMC, MediaTek, and SMIC, with varying ratings and price targets [16][17]

M Update Largan Precision | Asia Pacific October 17, 2024 03:53 PM GMT 3Q24 Results In Line, but 4Q24 Outlook Lackluster with Order Cut Reaction to earnings In-line Financial results versus consensus Strengthens our investment thesis Impact to our investment thesis Source: Company data, Morgan Stanley Research | --- | --- | --- | |-------|-------------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | Largely unchanged | | | | | | | | Impact to next 12-month | | | | | | | | | | Althou ...

Investment Rating - The report provides an "In-Line" investment rating for the Greater China Technology Hardware sector [4]. Core Insights - AI is identified as a key focus for 2025, with discussions on positioning within the AI hardware supply chain, including server ODMs versus components and GPU manufacturers like NVDA, AMD, and Intel [4]. - The report highlights the initial stage of liquid cooling adoption and the time required for immersion cooling to gain traction [4]. - Key stocks mentioned include Hon Hai, FII, AVC, Delta, Lenovo, Wistron, Wiwynn, Giga-Byte, Quanta, Lotes, GCE, Asustek, and Yageo [4]. - The demand cycle for iPhones is expected to continue, with a multi-year replacement cycle and upcoming upgrades for the iPhone 17 [4]. - The report questions whether the Android camp will differentiate itself based on AI features [4]. Summary by Sections AI Hardware Supply Chain - The report discusses strategies for positioning in the AI hardware supply chain for 2025, comparing server ODMs and components, and identifying tactical buy ideas versus long-term winners [4]. - It raises questions about the winners in GB200 and the sustainability of stock re-rating [4]. AI PCs - AI PCs are anticipated to drive the next phase of growth in the PC market, with discussions on their definition, necessity, and use cases [5]. - Key catalysts for the next 12 months are identified, along with potential winners and losers in the market [5]. Cloud & Edge AI - The report explores how Cloud & Edge AI will influence the total addressable market (TAM) for MLCC [5]. - Key stocks in this segment include Dell, HPQ, Lenovo, Asustek, SK Hynix, MediaTek, Delta, and Advantest [5]. Cyclical Components - A turnaround in cyclical components is suggested, with expectations of oversupply in ABF substrates lasting until 2025, leading to margin pressure [5]. - The report notes that MLCC inventory digestion is nearing completion, with an anticipated recovery in end-demand [5].

Investment Rating - The report maintains an "Overweight" rating for BHP and Vale, while downgrading South32 and Sandfire to "Neutral" [7][4]. Core Insights - Total visible copper inventories have decreased from approximately 700kt in August to 580kt in October, but this level is still about double compared to the same period in 2022/23 [4]. - China's refined copper demand fell to negative levels in Q2 2024, leading to a year-to-date demand growth of only 1% as of August [4]. - The copper price has rebounded by 12% to $9,650/t ($4.40/lb) from the August low, yet remains over 10% below the year-to-date high in May [4]. - J.P. Morgan forecasts a copper price of $11,050/t ($5/lb) for 2025, driven by stock unwinding and a supportive manufacturing environment due to falling interest rates [4]. Summary by Sections Copper Market Overview - Global copper demand has contracted by 2% year-to-date as of July, with demand from the rest of the world down 12% [4]. - Despite low treatment and refining charges (TC/RCs), refined copper production in China has increased by 6% year-to-date as of August [4]. Price Forecasts - The report anticipates a refined market surplus of approximately 200kt for 2024 and a deficit of around 90kt in 2025 [4]. - The upcoming U.S. elections are highlighted as a potential risk that could lead to increased tariffs and negatively impact base metal prices [4]. Company Ratings and Preferences - Preferred copper exposures include BHP in Australia, Lundin Mining in EMEA, and Teck in North America [4]. - The report has downgraded South32 and Sandfire to "Neutral" and remains underweight on Antofagasta and Boliden [4][7]. Substitution Analysis - A deep dive into copper substitution indicates that while substitution may accelerate in newer technologies, it is unlikely to fill the long-term physical market deficit, with a potential reduction of only ~3Mt in the 2030 deficit forecast [5].

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Investment Rating - The report assigns a price target of HK$20.20 for Shandong Gold Mining Co. Ltd, indicating a potential upside of 20% from the current price of HK$16.88 as of October 14, 2024 [4]. Core Insights - Shandong Gold Mining Co. Ltd has guided for a 9M24 net profit range of Rmb1.85-2.25 billion, representing a year-over-year increase of 38-67%. The reported net profit for 1H24 was Rmb1.38 billion, suggesting a 3Q24 net profit range of Rmb467-867 million, compared to Rmb684 million in 2Q24. The company needs to achieve the upper end of this guidance to meet market expectations [3][4]. Financial Metrics - The fiscal year ending for Shandong Gold is December 2023, with projected earnings per share (EPS) of Rmb0.52 for FY23, increasing to Rmb0.86 in FY24e and Rmb1.25 in FY25e [4]. - Revenue projections are Rmb59.275 billion for FY23, Rmb63.878 billion for FY24e, and Rmb71.614 billion for FY25e [4]. - EBITDA is expected to grow from Rmb8.414 billion in FY23 to Rmb12.058 billion in FY24e and Rmb15.450 billion in FY25e [4]. - The company’s market capitalization is currently Rmb114.234 million, with an enterprise value of Rmb161.343 million [4]. Valuation Metrics - The report indicates a P/E ratio of 25.9 for FY23, decreasing to 17.8 for FY24e and further to 12.3 for FY25e [4]. - The EV/EBITDA ratio is projected to decline from 16.8 in FY23 to 12.8 in FY24e and 9.5 in FY25e [4].

Industry Investment Rating - The report does not explicitly provide an overall industry investment rating [1][2][3][4][5] Core Views - The report highlights three key remaining issues in China's economy: demand shortfall, fiscal challenges, and the debate between investment and consumption [4] - Recent policy easing measures are expected to help stabilize the property market but face challenges in boosting prices and restoring demand [4] - The property sector's drag on demand will likely result in economic growth falling short of targets [4] - Over-reliance on investment to fill demand gaps may lead to persistent overcapacity and deflationary pressures [4] - Consumption is a viable alternative growth driver but measures to boost it have been limited so far [4] Property Market Analysis - Recent property easing measures may help prevent further price declines but property activity will continue to drag on economic growth [12] - The property market tone shift is seen as meaningful support for sustained improvement in home sales [12] - Housing inventory remains high with 43 million units in primary and secondary markets and 8 million units under construction [12] - Inventory reduction will take considerable time given the current sales run rate of 8 million units annually [12] - Reducing new housing construction will further weigh on property fixed asset investment and create additional demand gaps [13] Fiscal Situation - Fiscal expansion is constrained by deflationary pressures and already high public debt levels [21] - Land sale revenues have shrunk by about one-third since 2021 peak, putting pressure on local government finances [22] - Tax revenue growth has slowed significantly, with 3-month average growth at -5.9% in August compared to 6.2% average in 2016-19 [22] - A supplementary budget of RMB 1-2 trillion is expected to be approved, potentially expanding the augmented fiscal deficit by 1.6% of GDP [27] Growth Composition Debate - Over-reliance on investment as a growth driver continues to create overcapacity and exacerbate deflationary pressures [30] - China's investment-to-GDP ratio at 41% is significantly higher than Japan's 32% in 1993 [30] - GDP deflator has averaged -0.6% over the past five quarters, worse than Japan's +1.6% in 1990-94 [30] - Shifting to consumption-driven growth could help alleviate deflationary pressures and normalize nominal GDP growth [31] Economic Indicators - Manufacturing and infrastructure FAI grew at 8% and 6.2% respectively, while property FAI declined by 10.2% [17] - Retail sales growth was 2.1%, significantly lower than investment growth rates [17] - Industrial, infrastructure and service loans increased by RMB 7.6 trillion since Q2 2019, offsetting RMB 6.4 trillion decline in property loans [17]

Industry Investment Rating - The report does not explicitly provide an overall industry investment rating [1][2][3] Core Views - The primary economic challenge is the debt-deflation cycle, with deflationary pressures driven by real estate sector adjustments and excessive investment policies [8] - To break the debt-deflation cycle, a RMB 10 trillion fiscal stimulus package targeting consumption and real estate inventory clearance is deemed necessary [4] - Policymakers are hesitant to implement forceful fiscal easing due to high public debt levels (102% of GDP) and declining revenues [10][13] - Short-term fiscal measures are expected to be limited, but strong fiscal easing could be triggered if social dynamics weaken significantly [4] Fiscal Policy Analysis - China's public debt-to-GDP ratio has risen sharply from 73% in 2019 to 102% in Q2 2024, the largest increase among major economies [10][13] - Government revenue has declined from 22.4% of GDP pre-pandemic to 18.1%, with tax revenue falling from 17% to 13.5% of GDP [14][16] - Land sales revenue has contracted by 1.9 percentage points of GDP since Q1 2021, significantly impacting local government spending capacity [14] Policy Preferences - Policymakers continue to favor investment over consumption, focusing on manufacturing and infrastructure to fill the demand gap left by real estate [20] - This investment-driven approach risks exacerbating overcapacity, deflation, and debt-to-GDP ratio increases [20] - The report suggests a shift towards consumption stimulus through social security spending, trade-in programs, and inventory clearance would be more effective [33] Potential Scenarios 1) **Status Quo (4.5-5% GDP growth target, investment-focused)**: Continued deflation, accelerating debt-to-GDP ratio, worsening corporate returns [27][34] 2) **Growth Slowdown (1-2% GDP growth)**: Milder deflation than Scenario 1, slower debt growth, but faster social stability deterioration [28][34] 3) **Consumption-Driven (4-4.5% GDP growth)**: Moderate inflation recovery, stabilized debt ratio, improved corporate returns and social stability [33][34] Fiscal Stimulus Outlook - A RMB 1-2 trillion supplementary budget is expected, with only RMB 1 trillion (0.8% of GDP) for direct demand stimulus [23] - The ideal stimulus package would require RMB 6-7 trillion for social welfare spending and RMB 3-4 trillion for real estate inventory clearance [23]