20220419-招银国际-China_Technology_Sector__Implications_of_TSMC_and_Largan_results_7页_1mb

China Technology Sector Summary

Core Content and Key Takeaways

This document provides an analysis of the performance and outlook for key players in the China technology sector, focusing on TSMC (2330 TT) and Largan (3008 TT). It also includes a valuation table and peer comparisons across different segments such as Optics, Acoustics/Haptics, EMS/OEM, CIS, and RFFE.

TSMC 1Q22 Results

• Revenue: TWD 491.1bn, +35.5% YoY, +12.1% QoQ, exceeding the high-end of guidance.
• GPM: 55.6%, +3.2ppts YoY, +2.9ppts QoQ, above the high-end of guidance.
• OPM: 45.6%, +4.1ppts YoY, +3.9ppts QoQ.
• NPM: 41.3%, +2.7ppts YoY, +3.4ppts QoQ.
• EPS: TWD 7.82, +45.1% YoY, +22.0% QoQ.
• Shipment: +12.5% YoY, +1.4% QoQ.
• Free Cash Flow: TWD 110.04bn, decreased due to higher capex.
• Capex: US$ 9.38bn.

TSMC 2Q22 and 2022 Guidance

• 2Q22 Revenue: US$17.6–18.2bn, +1.9% QoQ at midpoint, exceeding the high end of prior guidance.
• 2Q22 GPM: 56–58%, OPM: 45–47%.
• 2022 Sales Outlook: Raised to exceed high-end of mid-to-high 20% YoY growth.
• 2022 Capex: US$40–44bn (maintained).
• Long-term Outlook: GPM at 53%+, ROE at 25%+.

TSMC Revenue Breakdown by Technology and Platform

• Technology Breakdown (YoY):

  • 5nm: 20%, vs 23% in 4Q
  • 7nm: 30%, vs 27% in 4Q
  • 16nm and below: 50%, vs 50% in 4Q

• Platform Breakdown (YoY):

  • Smartphone: 40%, up 1% QoQ
  • HPC: 41%, up 26% QoQ
  • IoT: 8%, up 5% QoQ
  • Automotive: 5%, up 26% QoQ
  • DCE: 3%, up 8% QoQ
  • Others: 3%, up 12% QoQ

TSMC Outlook for 2022

• Demand: Strong growth in HPC and automotive will offset smartphone seasonality.
• Inventory: Supply chain disruptions and geopolitical tensions will keep inventory levels high.
• Capacity & Pricing: Tight capacity throughout 2022, with pricing remaining firm despite macroeconomic concerns.
• Expansion Plans: 5nm in Arizona, 16nm/28nm in Japan and China.
• Advanced Packaging: US$4.1bn in 2021, expected similar growth to corporate average in 2022.
• Specialty Chemicals and Gas Supplies: Limited impact from the Ukraine crisis due to multiple regional suppliers and inventory.

Largan 1Q22 Results

• Revenue: TWD 10,133mn, down 14.3% YoY.
• GPM: 53.4%, down 11.4ppts YoY.
• Operating Profit: TWD 4,010mn, down 36.8% YoY.
• Net Income: TWD 5,513mn, up 3.7% YoY, driven by FX gain.
• EPS: TWD 41.30, up 7.6% QoQ, but down 46.6% YoY.

Largan 2022 Outlook

• Shipment: Weakness in 2Q22 expected, with Apr/May sales down MoM vs March.
• Product Mix: Mid/low-end product demand remains weak, but Largan is not participating in de-spec trend.
• High-end Demand: Still sluggish despite increased adoption of high-end cameras.
• Product Upgrades: 8P/periscope upgrade on track, but volume ramp expected in 2023.
• VR Products: Launch in 2H22E with small volume.
• Auto Lens Production: On track, but no auto cam module orders yet.
• Supply Chain: Uncertainties due to ongoing China pandemic and component mismatch in high-end products.
• New Plant: Expected to start production in 2H23E, contingent on smooth equipment move-in.

Investment Recommendations

• Hold: Sunny Optical (2382 HK), BYDE (285 HK), AAC Tech (2018 HK) due to high exposure to smartphone/tablet and limited near-term sales from automotive/HPC.
• Buy: Willsemi (603501 CH), Maxscend (300782 CH) due to better growth prospects from new drivers like AR/VR and auto/HPC.

Valuation Table

Peer Comparison Table

Main Points and Key Information

• TSMC: Strong HPC and automotive demand offset smartphone weakness in 1Q22, leading to higher-than-expected revenue and margins. However, smartphone seasonality and macroeconomic factors may affect 2Q22 performance. The company is on track for N3 (3nm) production in 2H22 and N2 (2nm) in 2025. TSMC is maintaining its guidance for 2022, with a raised sales outlook and firm pricing.
• Largan: Continued weakness in 2Q22 due to poor product mix and smartphone demand. The company is focusing on high-end product development and is expected to launch VR products in 2H22 with small volumes. Auto lens production is on track, but no auto cam module orders have been secured yet.
• Investment Outlook: A conservative stance is taken on companies with high exposure to smartphone/tablet and limited automotive/HPC sales. Willsemi and Maxscend are recommended for their potential in new growth areas like AR/VR and auto/HPC.
• Valuation and Performance: The valuation table shows different P/E and P/B ratios across companies, with ROE as a key metric. The peer comparison highlights the relative performance and valuations of companies in the optics, acoustics/haptics, EMS/OEM, CIS, and RFFE segments.