TSM ... Apr10

By Netresearch-Asia

• TSM’s 4QFY10 were ahead of our expectations due to a better-than-expected performance at the core manufacturing division, and compensation from certain customers for the strong Yen incurred in earlier periods.

• 4QFY10 revenue was up by 21.9% yoy reflecting the recovery in the automotive sector but sharply higher margins from better selling prices and improved productivity helped boost pre-tax profits by more than three-fold. On a sequential basis, 4QFY10 revenue was up 12.5% qoq whilst PBT jumped by a strong 56.7% qoq.

• We are projecting further earnings growth in FY11 on account of higher vehicle unit sales as well as the inclusion of a new subsidiary, Kenseisha (M) Sdn Bhd(KMSB), a hard disk drive manufacturer, from 3Q2010. A fluctuating Yen and increases in copper prices would however impact on margins.

• We have upgraded our forecasts and RNAV-derived price target to RM4.10/share, which implies an FY11F PER of 8x. The shares remain well supported by net cash of RM2.20/share as at the end of Jan 2010. BUY maintained.