Core Viewpoint - TSMC reported strong financial results for Q3, with significant revenue growth driven by high demand in the HPC sector and advanced process technologies, despite some challenges from currency fluctuations and overseas operations [1][5]. Financial Performance - TSMC achieved Q3 revenue of $33.1 billion, a year-on-year increase of 40.8% and a quarter-on-quarter increase of 10.1% [2]. - Gross margin reached 59.5%, exceeding the previous guidance of 55.5%-57.5% [1][2]. - Operating margin was 50.6%, surpassing the guidance of 45.5%-47.5% [1][2]. - Net income attributable to shareholders was NT$452.3 billion, reflecting a 39.1% year-on-year increase [2]. Market Segments - The HPC segment has become a crucial revenue driver, increasing its contribution from 51% in the previous year to 57%-60% in recent quarters [2][5]. - Revenue from smartphones rose by 19% quarter-on-quarter, while the automotive market showed signs of recovery with an 18% increase [10][13]. Technology and Pricing - TSMC's 3nm and 5nm processes accounted for 60% of total revenue, up from 52% a year ago [5][6]. - The company is considering price increases for its 2nm process technology, expected to be about 20% higher than the 3nm pricing [7][8]. Future Outlook - AI demand is projected to grow at a CAGR exceeding 45% over the next five years, indicating strong future revenue potential for TSMC [5]. - TSMC's overseas operations are expected to dilute gross margins by approximately 1%-2% in the coming years due to capacity expansions [7][14]. - The semiconductor supply chain is moving away from the inventory correction cycle, with some fabs planning to raise prices in response to strong demand [14].

Investment Rating - The report maintains a "Buy" rating for the company with a target price raised to $370 from $320 [1][5][7]. Core Insights - The company reported a 10.1% quarter-over-quarter revenue increase in Q3 2025, with a gross margin of 59.5%, exceeding guidance [1][12]. - For Q4 2025, the company expects revenue between $32.2 billion and $33.4 billion, with a gross margin forecast of 59%-61% [1][14]. - The company has raised its 2025 revenue guidance to a year-over-year growth of close to 35%, up from approximately 30% [1][14]. - The company expressed strong confidence in the growth of AI-related demand, expecting it to exceed previous guidance of a 40% CAGR from 2024 to 2029 [1][2]. Summary by Sections Financial Performance - In Q3 2025, the company achieved a revenue of $33.10 billion, with a gross margin of 59.5%, significantly above the guidance of 57.5% [1][12]. - The company’s capital expenditure for Q3 2025 was $9.70 billion [13]. AI Demand - The company noted that customers are requesting higher capacity due to increasing confidence in AI trends, with expectations for semiconductor demand growth to exceed the previously estimated CAGR of 40% from 2024 to 2029 [2][30]. - The company plans to increase investments in advanced nodes and packaging to meet the growing demand [2][30]. Global Expansion - The company is accelerating production in Arizona and has plans for additional facilities in Japan and Germany to support AI demand [3][31]. - The company expects a gross margin dilution of 1% to 2% in 2025 due to overseas factory ramp-up, which is an improvement from previous estimates [3][29]. Advanced Processes - The company is on track to achieve mass production of its N2 process in late 2025, with N2P and A16 expected to enter production in the second half of 2026 [4][32]. - The N2 series is anticipated to become a significant and lasting core node, enhancing the company's profitability [4][32]. Profit Forecast and Valuation - The revenue forecasts for 2025-2027 have been adjusted upward by 1.9%, 2.8%, and 0.4% respectively, with net profit estimates raised by 7.3%, 7.9%, and 6.1% [5][26]. - The company is assigned a 30x PE for 2026, reflecting its leading position in the semiconductor foundry market [5][26].

Investment Rating - The report maintains a "Buy" rating for the company, anticipating significant benefits from the high growth in AI demand and moderate growth in non-AI semiconductor demand [5]. Core Insights - The company reported Q3 2025 revenue of $33.1 billion, a year-on-year increase of 40.8%, with a gross margin of 59.5%, reflecting a 1.7 percentage point increase year-on-year [2]. - The company has raised its full-year revenue growth guidance to approximately 35% and expects Q4 2025 revenue to be between $32.2 billion and $33.4 billion [2]. - The company is optimistic about AI demand, projecting a CAGR of around 45% for AI revenue from 2024 to 2029, with expectations that future AI revenue growth will exceed this guidance [4]. Revenue and Profitability Analysis - In Q3 2025, the company's wafer revenue from advanced processes showed significant contributions from 3nm (23%), 5nm (37%), and 7nm (14%) processes [3]. - The revenue from downstream applications in Q3 2025 was stable for HPC, with increases of 19% for smartphones, 20% for IoT, and 18% for automotive [3]. - The company expects a full-year capital expenditure (CAPEX) of $40 billion to $42 billion [2]. Financial Projections - The company is projected to achieve net profits of $53.2 billion, $65.9 billion, and $83.2 billion for the years 2025, 2026, and 2027, respectively [5]. - Revenue forecasts for the company are $122.6 billion in 2025, $144.4 billion in 2026, and $172.8 billion in 2027, with growth rates of 36.6%, 17.8%, and 19.6% respectively [9]. - The projected EBITDA for 2025 is $61.8 billion, with a net profit margin expected to improve over the forecast period [10].

Core Insights - The wafer foundry capacity utilization rate is expected to remain stable in the second half of 2025 due to low inventory levels at IC manufacturers, the peak sales season for smartphones, and strong ongoing demand for AI [1][2] - Some wafer fabs are planning to raise prices for BCD and Power process platforms due to tight supply conditions, despite an overall lack of price increases across the industry [1][2] Group 1: Market Dynamics - The initial expectation was that the fourth quarter would see a decline in wafer foundry capacity utilization due to a seasonal slowdown in consumer products like TVs, but recent findings indicate a recovery in inventory levels among IC design clients and increased preparations for new smartphone and PC platforms [1] - AI server-related ICs are generating strong incremental orders, which are crowding out capacity for consumer products, contributing to a better-than-expected performance in the fourth quarter [1] Group 2: Future Outlook - By the end of the year, some eight-inch wafer fabs are expected to maintain near-full capacity utilization, with plans to raise foundry prices in 2026 driven by strong demand for AI-related Power products [2] - Despite the positive outlook for the second half of 2025, uncertainties in the global market persist, and factors such as a lack of innovative applications in consumer products and extended replacement cycles may pose risks for the semiconductor supply chain in 2026 [2]

Core Insights - The wafer foundry capacity utilization rate is expected to remain stable in Q4 2025, contrary to earlier predictions of a decline, due to low inventory levels at IC manufacturers, the peak sales season for smartphones, and strong AI demand [2][3] - Some wafer fabs are planning to raise prices for BCD and Power process platforms due to tight supply conditions, indicating a shift in market dynamics [2][3] - Despite the positive outlook for the second half of 2025, uncertainties in the global market and a lack of innovation in consumer products may pose risks for 2026 [3] Summary by Sections - **Wafer Foundry Performance**: The capacity utilization rate for wafer foundries is expected to hold steady in Q4 2025, with some fabs even outperforming Q3 due to replenished inventory and strong demand from AI-related ICs [2] - **Market Dynamics**: The anticipated price increases for certain process platforms reflect a market environment that is moving away from aggressive price competition, particularly in mature processes [3] - **Future Outlook**: While the current situation appears stable, potential challenges for 2026 include prolonged replacement cycles for consumer products and a lack of innovative applications [3]

Group 1 - Core conclusion: The report projects revenue for SMIC (688981.SH) to be 69.92 billion, 79.81 billion, and 92.52 billion yuan for 2025-2027, with net profit of 5.97 billion, 6.69 billion, and 8.19 billion yuan respectively, maintaining its leading position in the mainland foundry market [1][6] - SMIC is the largest foundry in mainland China, with production capabilities covering 350-7nm process nodes, and has made breakthroughs equivalent to 5nm technology [6] - The global market share of SMIC is expected to increase from 5.3% in 2023-2024 to 6%, moving from the 5th to the 3rd position globally [6] Group 2 - The report highlights the rapid growth of Weilon's (9985.HK) konjac products, with classic flavors like spicy and sour gaining market penetration, and new flavors like sesame sauce seeing quick sales growth [2][9] - The cost pressure on konjac powder is expected to decline from 2025 to 2027, leading to improved profit margins [10] - Revenue projections for Weilon are 7.33 billion, 8.45 billion, and 9.44 billion yuan for 2025-2027, with net profit expected to be 1.47 billion, 1.78 billion, and 2.10 billion yuan respectively, indicating significant growth [10] Group 3 - The report expresses optimism about the consumer sector, identifying four categories of investment opportunities, including low absolute valuation stocks with high dividends, stocks with improved fundamentals, reasonably valued stocks with high growth certainty, and sectors likely to benefit from short-term policy stimuli [3][12][13] - The consumer sector is expected to rebound due to improved fundamentals and cash flow, with specific companies showing positive changes in their competitive landscape [12] - The report suggests that the semiconductor market is poised for recovery, driven by AI and technological innovation, with a projected growth in the global semiconductor market from $679 billion in 2025 to $1,061 billion by 2030 [7]

Core Viewpoint - TSMC's stock price increased by over 7%, recovering all losses from the previous week, reaching $301.845 per share [1] Group 1: Company Performance - TSMC achieved a record high market share of 71% in the global foundry market, marking the first time it has surpassed 70% [1]

Investment Rating - The report assigns an "Accumulate" rating to the company, SMIC (688981.SH), with a target price of 146.45 CNY and a target market value of 1,171.597 billion CNY for 2025, based on a 7.6 times PB valuation [5][19]. Core Insights - SMIC is positioned as the leading wafer foundry in mainland China, with advanced process technology that is domestically leading. The company has a production capacity covering 350-7nm process nodes and has made breakthroughs equivalent to 5nm technology [5][19]. - The semiconductor market is expected to recover, driven by AI and a resurgence in consumer electronics demand, with global semiconductor market size projected to grow from 679 billion USD in 2025 to 1,061 billion USD by 2030, reflecting a 5-year CAGR of 9% [2][13]. - The company is focusing on expanding its advanced process capacity, particularly in the 7/5/3nm nodes, which are expected to significantly increase its market share and revenue potential [2][19]. Financial Projections - Revenue projections for SMIC from 2025 to 2027 are estimated at 699.24 billion CNY, 798.12 billion CNY, and 925.16 billion CNY, respectively. Corresponding net profits are projected at 59.67 billion CNY, 66.92 billion CNY, and 81.85 billion CNY [4][19]. - The company’s revenue growth rates are expected to be 21% in 2025, 14% in 2026, and 15.9% in 2027, indicating a strong recovery trajectory following a downturn in 2023 [4][19]. Market Position and Competitive Advantage - SMIC is the largest wafer foundry in mainland China, with a global market share projected to increase from 5.3% in 2023 to 6% in 2024, moving up to the third position globally [5][19]. - The company has a significant capacity for mature processes, with over 90% of its production currently in this category, but it also has substantial room for expansion in advanced processes [36][19]. Industry Trends - The semiconductor industry is entering a new growth cycle driven by AI and technological innovation, with a notable increase in demand for advanced integrated circuits [2][13]. - The global market for 7nm and below processes is expected to be nearly double that of mature processes, highlighting the importance of advanced technology in future growth [2][19]. Operational Efficiency - SMIC has been increasing its capital expenditures significantly, from 140.22 billion CNY in 2019 to 539.13 billion CNY, which is expected to enhance its production capabilities and operational efficiency [15][42]. - The EBITDA margin has shown a stable upward trend, indicating improved core profitability despite fluctuations in gross and net margins due to rising depreciation costs [43][42].

Group 1 - The market showed signs of recovery on October 13, with the three major indices narrowing their declines. The Shanghai Composite Index fell by 1.30%, the Shenzhen Component Index by 2.56%, and the ChiNext Index by 3%. The total market turnover reached 1.59 trillion yuan [1] - The self-controlled industrial chain strengthened, with significant gains in rare earth, photolithography machines, EDA, and operating systems. The Wind Rare Earth Index rose by 7.77%, with stocks like Huahong Technology and Baogang Co. hitting the daily limit [2] - The Ministry of Commerce announced export controls on rare earth-related items, expanding the scope to include technologies and equipment, which is expected to enhance the supply-demand dynamics in the rare earth sector [2][3] Group 2 - The domestic software sector saw strong performance, with stocks like China Software hitting the daily limit and Kingsoft Office rising over 18%. This surge is attributed to the increasing demand for self-sufficiency and industrial software [2][3] - The semiconductor industry continued to strengthen, with companies like Huahong and others experiencing significant gains. A report predicts that the global wafer foundry market will reach $270 billion by 2029, with a compound annual growth rate of 8.7% from 2025 to 2029 [3]

Investment Rating - The industry investment rating is "Positive" (maintained) [6] Core Insights - The wafer foundry industry is the final point for chips from design to application, benefiting from the surge in domestic computing infrastructure and the demand for advanced foundry services, highlighting the importance of self-sufficiency in the industry [1] - AI computing power and the "China for China" strategy are driving the expansion and demand in the wafer foundry market, particularly for advanced processes below 14nm, which remain a bottleneck for domestic foundries [2] - Domestic equipment breakthroughs and the weakening impact of overseas restrictions are expected to accelerate the expansion of local wafer foundries, with a focus on achieving full localization across the entire supply chain [3] - The wafer foundry sector is critical for semiconductor localization, with urgent needs for domestic replacements due to U.S. semiconductor policies that have significantly impacted domestic advanced process expansion [4] - Companies to watch include SMIC, Hua Hong Semiconductor, Jingxin Integrated Circuit, Yandong Microelectronics, and Xilinx Integrated [5] Summary by Sections - **Investment Rating**: The industry is rated as "Positive" [6] - **Market Drivers**: The growth in AI computing and local strategies are key drivers for demand in advanced wafer foundry services [2] - **Domestic Equipment and Localization**: Progress in domestic semiconductor equipment and reduced impact from overseas restrictions are facilitating faster expansion of local foundries [3] - **Policy Impact**: U.S. semiconductor policies have created a pressing need for domestic alternatives in the wafer foundry sector [4] - **Companies of Interest**: Notable companies in the sector include SMIC and others [5]