Taiwan Semi's Numbers Beat Expectations; Shares Very Attractive After June Pullback; FVE Retained

We maintain our fair value estimate of TWD 990 on Taiwan Semiconductor Manufacturing Company, or TSMC. The ADR fair value estimate is updated to USD 166 in line with the current spot exchange rate. The main model changes are higher 2022 top and bottom lines to account for market share gains from Samsung and weaker 2023 revenue growth and gross margin assumptions due to ongoing semiconductor inventory correction and raw material cost pressure. We reiterate TSMC’s shares are very undervalued at around 14 times 2023 P/E, as we continue to expect TSMC’s diluted EPS to attain 16.7% 2021-26 CAGR even after factoring in a 10% EPS drop in 2023. TSMC’s P/E is now the lowest in the past five years, including a period of weak demand in late 2018.