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原始內容
Taiwan Semiconductor Manufacturing (2330 TT)
Target price: TWD3,200.00 (from TWD3,000.00)
Shareprice(15Oct):TWD2,440.00 | Up/downside:+31.1%
Lack of passion despite strong AI?
- Another 'beat-n-raise' in quarterly prints but likely …
- … short of catalysts on limited positive surprise this time
- Reaffirming our Buy (1) call with a higher 12M TP of TWD3,200
What's new: TSMC continued delivering 'beat-n-raise' prints for its quarterly results and guidance on 15 October. While we raise our forecasts to factor in its better topline and pricing trajectory yet muted margin expectation on an incremental basis, we see likely lack of near-term passion from investors on limited positive surprises from its results call this time. That said, we believe AI demand remains strong and sustainable to support our Buy (1) call on the stock, though patience may be necessary for investors amid the current jittery environment.
What's the impact: Results intact, guidance mixed. Despite 3Q26 topline of USD46.7bn topping guidance (USD44.6-45.8bn) at TSMC, its 3Q26 EPS came in at TWD29.4, only marginally beating our/Bloomberg consensus estimates on lower opex and higher non-operating gains from long-term investments more than offsetting lower gross margin associated with higher depreciation costs on dilutive N2 ramp (table on p.2). Guidance calls for higher topline for 4Q26 with midpoint of the range 6% above our previous forecast, thanks to continued AI strength as customers continue to increase demand. Yet margins at the operating level looked muted without further operating leverage being expected by the street, due to the margindilutive N2 ramp. We raise our 2026-28E forecasts by 3-10% to factor in the better topline trajectory, plus our view of better pricing power.
Lack of near-term passion? Apart from the upbeat topline but muted margin guidance on an incremental basis, we left the results call with limited positive surprises this time which may not drive any passion for investors in the near term to catalyse the stock. That said, fundamentals remain strong since AI demand continues to mushroom from accelerators to CPU and other companion chips, as language models transform from generative to agentic for AI assistance. TSMC implied upside risk to its long-term AI accelerator revenue CAGR of mid-to-high-50% over 2024-29 and, as flagged in our Asian Foundry report, we saw upside risk to TSMC's pricing power for 2027, given the still meaningful supply constraint where management reiterated its strong conviction in this multi-year AI megatrend and active capacity build aimed to narrow the supply/demand gap.
What we recommend: We raise our 12M TP for TSMC to TWD3,200 (previous: TWD3,000), based on our finetuned ROE-adjusted PBR target of 7.5x one-year forward BVPS forecast (previous: 7.7x). We reiterate our Buy (1) call with key downside risks of 'silicon inflation' and geopolitical overhangs leading to global inflation and AI capex cut.
How we differ: Our 2028E EPS is 11% below the Bloomberg consensus likely on our view calling for a soft-landing in the chip cycle.
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2
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(unchanged)
Rick Hsu (886) 2 8758 6261
rick.hsu@daiwacm-cathay.com.tw
Sam Weng (886) 2 8758 6255 sam.weng@daiwacm-cathay.com.tw
Forecast revisions (%)
| Year to 31 Dec | 26E | 27E | 28E |
|---|---|---|---|
| Revenue change | 2.7 | 10.1 | 11.0 |
| Net profit change | 2.7 | 8.9 | 10.1 |
| Core EPS (FD) change | 2.7 | 8.9 | 10.1 |
Source: Daiwa forecasts
Share price performance
| 12-month range | 1,375.00-2,585.00 |
|---|---|
| Market cap (USDbn) | 1,970.76 |
| 3m avg daily turnover (USDm) | 1,922.98 |
| Shares outstanding (m) | 25,932 |
| Major shareholder | National Development Fund (6.4%) |
Financial summary (TWD)
| Year to 31 Dec | 26E | 27E | 28E |
|---|---|---|---|
| Revenue (m) | 5,628,740 | 7,592,903 | 8,553,486 |
| Operating profit (m) | 3,319,867 | 4,412,664 | 4,890,486 |
| Net profit (m) | 2,918,891 | 3,803,865 | 4,275,578 |
| Core EPS (fully-diluted) | 112.559 | 146.686 | 164.877 |
| EPS change (%) | 69.9 | 30.3 | 12.4 |
| Daiwa vs Cons. EPS (%) | 4.4 | 1.2 | (10.9) |
| PER (x) | 21.7 | 16.6 | 14.8 |
| Dividend yield (%) | 1.1 | 1.1 | 1.2 |
| DPS | 26.0 | 28.0 | 30.0 |
| PBR (x) | 8.0 | 5.7 | 4.3 |
| EV/EBITDA (x) | 14.6 | 10.6 | 8.9 |
| ROE (%) | 43.7 | 40.0 | 33.3 |
Source: FactSet, Daiwa forecasts
TSMC: quarterly P&L estimates and forecasts
| TWDbn | 1Q26 | 2Q26 | 3Q26 | 4Q26E | 1Q27E | 2Q27E | 3Q27E | 4Q27E | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total revenue | 1,134 | 1,270 | 1,494 | 1,730 | 1,697 | 1,808 | 1,976 | 2,112 | 3,809 | 5,629 | 7,593 | 8,553 |
| Total revenue (USDbn) | 35.9 | 40.2 | 46.7 | 54.1 | 53.0 | 56.5 | 61.7 | 66.0 | 122.5 | 176.9 | 237.3 | 267.3 |
| COGS | -383 | -410 | -502 | -569 | -577 | -608 | -662 | -707 | -1,528 | -1,863 | -2,554 | -2,962 |
| Gross profit | 751 | 860 | 992 | 1,161 | 1,120 | 1,200 | 1,314 | 1,406 | 2,281 | 3,765 | 5,039 | 5,592 |
| Opex | -92 | -94 | -116 | -144 | -141 | -150 | -162 | -173 | -345 | -446 | -626 | -701 |
| Operating profit | 659 | 767 | 876 | 1,018 | 979 | 1,050 | 1,152 | 1,233 | 1,936 | 3,320 | 4,413 | 4,890 |
| EBITDA | 824 | 965 | 1,097 | 1,248 | 1,229 | 1,310 | 1,437 | 1,541 | 2,624 | 4,135 | 5,516 | 6,283 |
| Pretax profit | 688 | 862 | 911 | 1,057 | 1,018 | 1,094 | 1,196 | 1,278 | 2,042 | 3,518 | 4,586 | 5,154 |
| Income taxes | -115 | -156 | -148 | -180 | -173 | -186 | -203 | -217 | -326 | -598 | -780 | -876 |
| Net profit | 572 | 707 | 763 | 877 | 845 | 907 | 992 | 1,060 | 1,718 | 2,919 | 3,804 | 4,276 |
| FD O/S (bn) | 26 | 26 | 26 | 26 | 26 | 26 | 26 | 26 | 26 | 26 | 26 | 26 |
| FD EPS (TWD) | 22.08 | 27.25 | 29.43 | 33.81 | 32.57 | 34.98 | 38.26 | 40.88 | 66.24 | 112.56 | 146.69 | 164.88 |
| Margin | ||||||||||||
| Gross | 66% | 68% | 66% | 67% | 66% | 66% | 66% | 67% | 60% | 67% | 66% | 65% |
| Operating | 58% | 60% | 59% | 59% | 58% | 58% | 58% | 58% | 51% | 59% | 58% | 57% |
| EBITDA | 73% | 76% | 73% | 72% | 72% | 72% | 73% | 73% | 69% | 73% | 73% | 73% |
| Net | 50% | 56% | 51% | 51% | 50% | 50% | 50% | 50% | 45% | 52% | 50% | 50% |
| Growth (QoQ) | ||||||||||||
| Total revenue | 8% | 12% | 18% | 16% | -2% | 7% | 9% | 7% | ||||
| Gross profit | 15% | 15% | 15% | 17% | -4% | 7% | 10% | 7% | ||||
| Operating profit | 17% | 16% | 14% | 16% | -4% | 7% | 10% | 7% | ||||
| EBITDA | 13% | 17% | 14% | 14% | -2% | 7% | 10% | 7% | ||||
| Net profit | 13% | 23% | 8% | 15% | -4% | 7% | 9% | 7% | ||||
| FD EPS | 13% | 23% | 8% | 15% | -4% | 7% | 9% | 7% | ||||
| Growth (YoY) | ||||||||||||
| Total revenue | 35% | 36% | 51% | 65% | 50% | 42% | 32% | 22% | 32% | 48% | 35% | 13% |
| Gross profit | 52% | 57% | 69% | 78% | 49% | 39% | 32% | 21% | 40% | 65% | 34% | 11% |
| Operating profit | 62% | 65% | 75% | 80% | 49% | 37% | 31% | 21% | 46% | 71% | 33% | 11% |
| EBITDA | 42% | 48% | 65% | 72% | 49% | 36% | 31% | 23% | 32% | 58% | 33% | 14% |
| Net profit | 58% | 77% | 69% | 73% | 48% | 28% | 30% | 21% | 46% | 70% | 30% | 12% |
| FD EPS | 58% | 77% | 69% | 73% | 48% | 28% | 30% | 21% | 46% | 70% | 30% | 12% |
Source: Company, Daiwa estimates and forecasts
TSMC: 3Q26 results and 4Q26 guidance check
| TWDm | 3Q26 - Actual | 3Q26 - Daiwa | 3Q26 - Variance | Growth - QoQ | Growth - YoY | 4Q26E - Guidance | 4Q26E - Daiwa (previous) |
|---|---|---|---|---|---|---|---|
| Revenue | 1,494,243 | 1,462,926 | 2% | 18% | 51% | USD52.3-54.3bn (TWD1663-1727bn) | USD50.4bn (+8% QoQ) |
| Gross profit | 992,379 | 985,471 | 1% | 15% | 69% | 65-67% | 67% |
| Operating profit | 876,445 | 855,271 | 2% | 14% | 75% | 56.5-58.5% | 59% |
| EBITDA | 1,096,649 | 1,065,271 | 3% | 14% | 65% | ||
| Pretax profit | 911,039 | 888,480 | 3% | 6% | 73% | Capex remained at USD60-64bn | USD62bn |
| Net profit | 763,064 | 738,327 | 3% | 8% | 69% | ||
| Adjusted EPS (TWD) | 29.43 | 28.47 | 3% | 8% | 69% | ||
| Margin | |||||||
| Gross | 66.4% | 67.4% | -0.9% | ||||
| Operating | 58.7% | 58.5% | 0.2% | ||||
| EBITDA | 73.4% | 72.8% | 0.6% | ||||
| Net | 51.1% | 50.5% | 0.6% | ||||
| Operation | |||||||
| Shipment ('000, 12" equ.wafers) | 4,476 | 4,691 | -5% | ||||
| Utilisation* | 88% | 92% | -4% | ||||
| <=3nm sales contribution | 40% | 38% | 2% |
Source: Company, Daiwa estimates and forecasts
Note: * Calculated as wafer shipment divided by capacity estimated by Daiwa
TSMC: 4-quarter forward PER band
Source: Company, TEJ, Daiwa forecasts
Source: Company, TEJ, Daiwa forecasts
Financial summary
Key assumptions
| Year to 31 Dec | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|
| Capacity utilization (%) | 102 | 98 | 73 | 76 | 80 | 88 | 96 | 96 |
| Blended ASP (USD) | 1,642 | 1,933 | 2,101 | 2,546 | 2,930 | 3,513 | 4,034 | 4,231 |
| Wafer shipment (8" equ., '000) | 31,902 | 34,320 | 27,005 | 29,051 | 33,802 | 39,914 | 45,974 | 49,377 |
Profit and loss (TWDm)
| Year to 31 Dec | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|
| Wafer Foundry Revenue | 1,463,157 | 1,979,286 | 1,770,430 | 2,378,253 | 3,079,347 | 4,462,673 | 5,934,673 | 6,685,473 |
| Sub & Other Revenue | 124,258 | 284,605 | 391,305 | 516,054 | 729,707 | 1,166,066 | 1,658,230 | 1,868,014 |
| Other Revenue | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total Revenue | 1,587,415 | 2,263,891 | 2,161,736 | 2,894,308 | 3,809,054 | 5,628,740 | 7,592,903 | 8,553,486 |
| Other income | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| COGS | (767,878) | (915,536) | (986,625) | (1,269,954) | (1,527,760) | (1,863,311) | (2,554,116) | (2,961,614) |
| SG&A | (44,822) | (63,813) | (71,275) | (98,119) | (98,775) | (111,879) | (170,549) | (188,177) |
| Other op.expenses | (124,735) | (163,262) | (182,370) | (204,182) | (246,427) | (333,683) | (455,574) | (513,209) |
| Operating profit | 649,981 | 1,121,279 | 921,466 | 1,322,053 | 1,936,092 | 3,319,867 | 4,412,664 | 4,890,486 |
| Net-interest inc./(exp.) | 488 | 10,672 | 48,295 | 76,718 | 93,369 | 121,900 | 164,500 | 254,920 |
| Assoc/forex/extraord./others | 12,657 | 12,239 | 9,411 | 7,068 | 12,202 | 76,507 | 8,569 | 8,998 |
| Pre-tax profit | 663,126 | 1,144,190 | 979,171 | 1,405,839 | 2,041,663 | 3,518,273 | 4,585,733 | 5,154,404 |
| Tax | (66,053) | (127,290) | (141,404) | (233,407) | (326,266) | (598,036) | (779,575) | (876,249) |
| Min. int./pref. div./others | (533) | (370) | 730 | 836 | 2,486 | (1,346) | (2,293) | (2,577) |
| Net profit (reported) | 596,540 | 1,016,530 | 838,498 | 1,173,268 | 1,717,883 | 2,918,891 | 3,803,865 | 4,275,578 |
| Net profit (adjusted) | 596,540 | 1,016,530 | 838,498 | 1,173,268 | 1,717,883 | 2,918,891 | 3,803,865 | 4,275,578 |
| EPS (reported)(TWD) | 23.005 | 39.204 | 32.334 | 45.252 | 66.255 | 112.559 | 146.686 | 164.877 |
| EPS (adjusted)(TWD) | 23.005 | 39.204 | 32.334 | 45.252 | 66.255 | 112.559 | 146.686 | 164.877 |
| EPS (adjusted fully-diluted)(TWD) | 23.006 | 39.203 | 32.334 | 45.242 | 66.243 | 112.559 | 146.686 | 164.877 |
| DPS (TWD) | 10.250 | 11.001 | 11.249 | 14.003 | 18.003 | 26.000 | 28.000 | 30.000 |
| EBIT | 649,981 | 1,121,279 | 921,466 | 1,322,053 | 1,936,092 | 3,319,867 | 4,412,664 | 4,890,486 |
| EBITDA | 1,072,375 | 1,558,533 | 1,453,657 | 1,984,848 | 2,624,188 | 4,134,706 | 5,515,783 | 6,282,669 |
Cash flow (TWDm)
| Year to 31 Dec | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|
| Profit before tax | 663,126 | 1,144,190 | 979,171 | 1,405,839 | 2,041,663 | 3,518,273 | 4,585,733 | 5,154,404 |
| Depreciation and amortisation | 422,395 | 437,254 | 532,191 | 662,795 | 688,096 | 814,839 | 1,103,119 | 1,392,183 |
| Tax paid | (66,053) | (127,290) | (141,404) | (233,407) | (326,266) | (598,036) | (779,575) | (876,249) |
| Change in working capital | (100,384) | (53,286) | 324 | (90,088) | 160 | (379,000) | (50,000) | (180,000) |
| Other operational CF items | 193,077 | 209,731 | (128,316) | 81,038 | (128,677) | (8,283) | (9,577) | (10,225) |
| Cash flow from operations | 1,112,161 | 1,610,599 | 1,241,967 | 1,826,177 | 2,274,976 | 3,347,793 | 4,849,700 | 5,480,113 |
| Capex | (839,196) | (1,082,672) | (949,817) | (956,008) | (1,272,411) | (1,963,581) | (1,960,000) | (2,161,600) |
| Net (acquisitions)/disposals | 4,676 | (128,712) | (55,781) | (57,882) | (37,079) | 738 | 0 | 0 |
| Other investing CF items | (1,847) | 20,456 | 99,477 | 149,047 | 165,097 | 0 | 0 | 0 |
| Cash flow from investing | (836,366) | (1,190,928) | (906,121) | (864,843) | (1,144,393) | (1,962,842) | (1,960,000) | (2,161,600) |
| Change in debt | (1,090) | (1,730) | (17,407) | 21,601 | (46,362) | (136,926) | (128,434) | (109,169) |
| Net share issues/(repurchases) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Dividends paid | (265,786) | (285,234) | (291,722) | (363,055) | (466,779) | (674,232) | (726,096) | (777,960) |
| Other financing CF items | (3,622) | 59,198 | 10,284 | 8,054 | (64,022) | 0 | 0 | 0 |
| Cash flow from financing | (270,499) | (227,766) | (298,844) | (333,399) | (577,163) | (811,158) | (854,530) | (887,129) |
| Forex effect/others | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in cash | 5,296 | 191,905 | 37,002 | 627,935 | 553,420 | 573,793 | 2,035,170 | 2,431,384 |
| Free cash flow | 272,965 | 527,927 | 292,151 | 870,169 | 1,002,565 | 1,384,213 | 2,889,700 | 3,318,513 |
Source: FactSet, Daiwa forecasts
Financial summary continued …
Balance sheet (TWDm)
| Year to 31 Dec | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|
| Cash & short-term investment | 1,188,442 | 1,561,483 | 1,687,644 | 2,422,009 | 3,068,595 | 3,641,650 | 5,676,820 | 8,108,203 |
| Inventory | 193,102 | 221,149 | 250,997 | 287,869 | 288,109 | 428,109 | 498,109 | 553,109 |
| Accounts receivable | 207,637 | 231,409 | 201,938 | 272,088 | 281,791 | 541,791 | 561,791 | 691,791 |
| Other current assets | 17,892 | 38,856 | 53,453 | 106,387 | 178,635 | 180,000 | 30,000 | 30,000 |
| Total current assets | 1,607,073 | 2,052,897 | 2,194,033 | 3,088,352 | 3,817,131 | 4,791,550 | 6,766,721 | 9,383,104 |
| Fixed assets | 1,975,119 | 2,693,837 | 3,064,475 | 3,234,980 | 3,691,841 | 5,186,780 | 6,399,753 | 7,386,825 |
| Goodwill & intangibles | 113,927 | 149,117 | 144,421 | 219,565 | 251,682 | 179,500 | 189,200 | 194,000 |
| Other non-current assets | 29,385 | 68,928 | 129,442 | 149,040 | 172,370 | 172,370 | 172,370 | 172,370 |
| Total assets | 3,725,503 | 4,964,779 | 5,532,371 | 6,691,938 | 7,933,024 | 10,330,201 | 13,528,044 | 17,136,300 |
| Short-term debt | 127,171 | 19,314 | 9,293 | 59,858 | 136,926 | 128,434 | 109,169 | 92,794 |
| Accounts payable | 48,911 | 56,522 | 57,293 | 74,227 | 84,330 | 105,330 | 145,330 | 150,330 |
| Other current liabilities | 563,421 | 868,391 | 846,997 | 1,130,441 | 1,236,763 | 1,221,945 | 1,377,860 | 1,553,110 |
| Total current liabilities | 739,503 | 944,227 | 913,583 | 1,264,525 | 1,458,019 | 1,455,710 | 1,632,359 | 1,796,234 |
| Long-term debt | 610,071 | 834,336 | 913,900 | 926,605 | 856,228 | 727,793 | 618,624 | 525,831 |
| Other non-current liabilities | 205,196 | 225,727 | 221,625 | 177,233 | 157,982 | 160,000 | 165,000 | 170,000 |
| Total liabilities | 1,554,770 | 2,004,290 | 2,049,108 | 2,368,362 | 2,472,229 | 2,343,503 | 2,415,984 | 2,492,064 |
| Share capital | 259,304 | 259,304 | 259,321 | 259,327 | 259,325 | 259,325 | 259,325 | 259,325 |
| Reserves/R.E./others | 1,908,983 | 2,686,349 | 3,199,593 | 4,029,218 | 5,160,271 | 7,687,519 | 10,815,174 | 14,349,927 |
| Shareholders' equity | 2,168,287 | 2,945,653 | 3,458,914 | 4,288,545 | 5,419,596 | 7,946,845 | 11,074,500 | 14,609,252 |
| Minority interests | 2,447 | 14,836 | 24,349 | 35,031 | 41,199 | 39,853 | 37,560 | 34,983 |
| Total equity & liabilities | 3,725,503 | 4,964,779 | 5,532,371 | 6,691,938 | 7,933,024 | 10,330,201 | 13,528,044 | 17,136,300 |
| EV | 62,825,326 | 62,581,083 | 62,533,978 | 61,873,564 | 61,239,838 | 60,528,511 | 58,362,614 | 55,819,484 |
| Net debt/(cash) | (451,200) | (707,833) | (764,451) | (1,435,546) | (2,075,442) | (2,785,422) | (4,949,027) | (7,489,579) |
| BVPS (TWD) | 83.621 | 113.600 | 133.384 | 165.370 | 208.985 | 306.449 | 427.059 | 563.368 |
Key ratios (%)
| Year to 31 Dec | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|
| Sales (YoY) | 18.5 | 42.6 | (4.5) | 33.9 | 31.6 | 47.8 | 34.9 | 12.7 |
| EBITDA (YoY) | 19.4 | 45.3 | (6.7) | 36.5 | 32.2 | 57.6 | 33.4 | 13.9 |
| Operating profit (YoY) | 14.7 | 72.5 | (17.8) | 43.5 | 46.4 | 71.5 | 32.9 | 10.8 |
| Net profit (YoY) | 15.2 | 70.4 | (17.5) | 39.9 | 46.4 | 69.9 | 30.3 | 12.4 |
| Core EPS (fully-diluted) (YoY) | 15.2 | 70.4 | (17.5) | 39.9 | 46.4 | 69.9 | 30.3 | 12.4 |
| Gross-profit margin | 51.6 | 59.6 | 54.4 | 56.1 | 59.9 | 66.9 | 66.4 | 65.4 |
| EBITDA margin | 67.6 | 68.8 | 67.2 | 68.6 | 68.9 | 73.5 | 72.6 | 73.5 |
| Operating-profit margin | 40.9 | 49.5 | 42.6 | 45.7 | 50.8 | 59.0 | 58.1 | 57.2 |
| Net profit margin | 37.6 | 44.9 | 38.8 | 40.5 | 45.1 | 51.9 | 50.1 | 50.0 |
| ROAE | 29.7 | 39.8 | 26.2 | 30.3 | 35.4 | 43.7 | 40.0 | 33.3 |
| ROAA | 18.4 | 23.4 | 16.0 | 19.2 | 23.5 | 32.0 | 31.9 | 27.9 |
| ROCE | 25.5 | 33.4 | 22.4 | 27.2 | 32.9 | 43.4 | 42.7 | 36.1 |
| ROIC | 37.5 | 50.2 | 31.7 | 39.3 | 51.9 | 64.2 | 64.5 | 61.0 |
| Net debt to equity | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Effective tax rate | 10.0 | 11.1 | 14.4 | 16.6 | 16.0 | 17.0 | 17.0 | 17.0 |
| Accounts receivable (days) | 41.7 | 35.4 | 36.6 | 29.9 | 26.5 | 26.7 | 26.5 | 26.7 |
| Current ratio (x) | 2.2 | 2.2 | 2.4 | 2.4 | 2.6 | 3.3 | 4.1 | 5.2 |
| Net interest cover (x) | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. |
| Net dividend payout | 55.1 | 47.8 | 34.8 | 30.9 | 27.2 | 23.1 | 19.1 | 18.2 |
| Free cash flow yield | 0.4 | 0.8 | 0.5 | 1.4 | 1.6 | 2.2 | 4.6 | 5.2 |
Source: FactSet, Daiwa forecasts
Company profile
Incorporated in Taiwan in 1987, Taiwan Semiconductor Manufacturing Co. (TSMC) is the world's largest complementary metal oxide semiconductor (CMOS) foundry in revenue terms. TSMC offers foundry services such as wafer masking, fabrication, probing, packaging and testing, to a high variety of customers including fabless chipmakers and IDMs. Its manufacturing fabs are located in Taiwan, China, the US and Singapore.
ESG analysis
ESG risks
| Risks | Management | Analystcomments | |
|---|---|---|---|
| Executive/board quality | 1 | TSMC's board of directors (BoD) has 10 members, including 6 independent directors representing 60% of total directors. The background of TSMC's BoD is diversified, with members from industries, academia, and law. Also, its board members include representatives from not only Taiwan but also Europe and the US, bringing their experience in operating international businesses to the board. We believe the high percentage of independent directors and a diverse mix of expertise from the board members strengthen the functionality of its BoD, as evidenced by TSMC's leading position in the foundry market. | |
| G | Capital management | 1 | TSMC pays its dividend on a quarterly basis. In the past 5 years, it has managed its dividend payout well, as evidenced by its dividend in dollar terms, where it has never lowered its dividend. As the leader in advanced technology nodes, TSMC has kept expanding its capacity for advanced nodes; as such, we expect its capital intensity to increase to the level near or above 40% over 2025-26 (vs. its long-term target of mid-30%). However, we believe TSMC will at least sustain its cash dividend payout in dollar terms over 2025-26E. We see its balance between investment and dividend as appropriate. |
| Related party & transaction | 1 | TSMC's sales to related parties and purchases from related parties remain immaterial as a percentage of total revenue and cost of goods sold in 2026. We view these levels as insignificant and therefore see limited risk to TSMC's earnings, cash flow generation, or corporate governance. | |
| S | Supplychain management | 1 | As the leader in the global foundry industry, TSMC approaches supply chain management by focusing on 2 main strategies: sustainability risk management and local supply chain optimisation. It requires all its suppliers to comply with its "Code with Ethics and Business Conduct", and to follow regulations on human rights and conflict-free minerals. In 2019, 100% of its tier-1 suppliers signed the "Supplier Code of Conduct" and self-assessment questionnaire on sustainable management. Also, TSMC's raw materials purchased are 100% Democratic Republic of the Congo (DRC) conflict-free. It also requires its critical suppliers to report on the status of sustainability management in their critical upstream supply chains. Through these measures, we see TSMC reducing its supply chain risk. |
| E | Water&wastewater management | 2 | TSMC applies internal and external company resources to develop water reclaimation technology, implements water conservation measures and uses reeclaimed water in the manufacturing process. For example, on September 19, 2022, TSMC Tainan Science Park Reclaimed Water Plant started supplying reclaimed water. In 2025, TSMC aims to replace 5% of water resources with reclaimed water, and continue to cooperate with the government to complete the 2nd water reclamation plan in Anping, Tainan. In 2030, TSMC targets to replace > 60% of water resources with reclaimed water. |
| E | Waste & hazardous materials management | 1 | TSMC's waste recycling rate reached 96% in 2022 for 8 years in a row. Also, the percentage of waste sent to landfills was less than 1% for 13 years in a row in 2022. TSMC achieved reducing its outsourced unit waste disposal (kg/12" equivalent wafer mask layer) to 0.99 in 2022. Furthermore, TSMC has set a goal to reduce its outsourced unit waste disposal per wafer to no more than 0.5 in 2030. |
| E | GHGemissions | 1 | TSMC has continued its efforts to reduce greenhouse gas (GHG) emissions to drive low-carbon manufacturing. In 2022, TSMC achieved net zero emissions of direct and indirect (from purchased energy) GHG Emissions in overseas factories, and 100% use of carbon-neutral natural gas in Taiwan fabs. It has set a target to achieve Net Zero Emissions by 2050. |
Note: Management score represents a company's ability to manage/benefit from certain ESG topics. The scores range from 1 to 3, with 1 being the strongest.
Update Date: 15 Oct 2026
Source: Daiwa, Company