TSMC(US:TSM) Guotai Junan Securities·2024-10-18 12:11Investment Rating - The report maintains an "Overweight" rating for TSMC (TSM N) with a target price of $238 [2][14] Core Views - TSMC's Q3 2024 gross margin significantly exceeded expectations at 57 8% (up 3 5 pct YoY and 4 6 pct QoQ) driven by improved capacity utilization and cost reduction measures [3][8] - AI demand is confirmed with strong growth in advanced nodes (3nm and 2nm) and CoWoS capacity expansion [3][14] - The competitive landscape in the foundry industry is shifting in favor of TSMC as competitors face challenges in advanced node development [3][14] Financial Performance - Q3 2024 revenue reached $23 5 billion (up 36% YoY and 12 9% QoQ) surpassing consensus estimates of $23 35 billion [8] - Adjusted net profit for Q3 2024 was NT$325 26 billion (up 54 2% YoY and 31 2% QoQ) exceeding consensus estimates of NT$298 74 billion [8] - Advanced nodes (≤7nm) accounted for 69% of revenue in Q3 2024 (up 10 pct YoY and 2 pct QoQ) with 3nm contributing 20% (up 14 pct YoY and 5 pct QoQ) [10] Revenue Breakdown - By application: HPC accounted for 51% of revenue (up 9 pct YoY) while smartphones contributed 34% (down 5 pct YoY) [11] - By region: North America represented 71% of revenue (up 2 pct YoY) while China accounted for 11% (down 1 pct YoY) [11] Capacity Expansion - CoWoS capacity is expected to double in 2025 following a 2x increase in 2024 [3] - Overseas fab progress is accelerating with Arizona fabs expected to start production in early 2025 2028 and 2030 while Japan and Germany fabs are scheduled for 2024 Q4 and 2027 respectively [3] Valuation and Forecast - Revenue forecasts for FY2024E-FY2026E are revised upward to NT$28 858 billion NT$37 517 billion and NT$43 758 billion respectively [3] - GAAP net profit forecasts for FY2024E-FY2026E are raised to NT$11 844 billion NT$16 757 billion and NT$19 916 billion respectively [3] - The target price is increased to $238 based on DCF valuation maintaining the "Overweight" rating [14]