TSM Global ... Dec09

Results Review & Earnings Outlook
• TSM’s 3QFY10 (Jan) results exceeded our expectations, bringing
9MFY10 net profit to MYR17.0 mln, or 88% of our previous FY10
estimate.

• 3QFY10 revenue declined marginally by 1.2% YoY to MYR65.1 mln,
as sales gradually recovered to pre-crisis levels. Meanwhile, net profit
for the quarter was 4% higher YoY at MYR6.5 mln, largely boosted by
a lower effective tax rate of 9.3% vs. 21.3% a year earlier.

• Revenue rose 4% QoQ in tandem with the continued recovery in the
automotive sector. Despite the higher sales, net profit was
nevertheless 2.3% lower QoQ, hurt by the appreciation of the JPY
against MYR and higher copper prices.

• While 9MFY10 sales and net profit were still down 11% and 19% YoY
(MYR185.0 mln and MYR17.0 mln respectively) as a result of the
economic slowdown, we believe TSM’s prospects are improving,
judging from the sequential increases in sales and net profit over the
last three quarters. We expect the uptrend in performance to prevail
into FY11, underpinned by the gradual revival in the automotive
industry. As such, we raise our FY10 and FY11 net profit estimates by
15% and 16% to MYR22.0 mln and MYR24.3 mln respectively.

Recommendation & Investment Risks
• We maintain a Buy recommendation on TSM but raise our 12-month
target price to MYR2.30 (from MYR2.00) on account of our earnings
upgrade.

• Our target price is derived by ascribing a target PER of 5x against
FY11 earnings (both unchanged), inclusive of a projected dividend.
Our target PER multiple is at the lower end of the 5x–10x PER
valuation range for autoparts companies under our coverage. This
reflects the higher uncertainty in our projections, as our attempts to
meet with management for an update have been unsuccessful.

• We continue to like TSM for its resilient earnings delivery and swift
recovery from the economic downturn. We expect TSM to benefit
further from the liberalization initiatives under the recently revamped
National Automotive Policy. Valuation appears to be undemanding at
prospective 4.5x FY11 PER. The current share price is also lower than
its NTA/share and net cash/share of MYR2.53 and MYR2.26
respectively as at end-October 2009.

• Risks to our recommendation and target price include a slower-thanexpected
recovery in consumer spending and stronger-than-expected
appreciation of JPY and USD against the MYR.