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Foreign brokerages cut target prices for TSMC shares on Q1 caution

2019/01/19 21:26:02

Taipei, Jan. 19 (CNA) Several foreign brokerages have cut their target prices for shares of Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, after the company gave weaker-than-expected sales guidance Thursday for the first quarter of this year.

In a research note, one Asian brokerage firm said that increasing weakness in global demand in recent months has prompted TSMC to issue a lower-than-expected sales forecast for the January-March period.

The falling demand boosted inventory levels in the global semiconductor industry, prompting TSMC to adjust its inventories, sending shipments lower in the first quarter.

As a result, the securities house has lowered its target price for TSMC shares to NT$254 (US$8.25) from NT$260, predicting that inventory adjustments could continue into the second quarter.

On Friday, TSMC fell 0.91 percent to close at NT$218.50, with 49.61 million shares changing hands, underperforming the main board, where the benchmark weighted index ended up 0.48 percent at 9,836.06 points.

Foreign institutional investors stood on the sell side Friday, registering a net sell of 13.59 million TSMC shares after an investor conference held by the chipmaker a day earlier. Foreign institutional selling dragged down TSMC's market capitalization by NT$51.8 billion to NT$5.66 trillion in a single session.

In the investor conference, TSMC said its consolidated sales for the first quarter of this year could fall 22 percent from a quarter earlier in reflection of a slower global economy and inventory adjustments in the industry.

The sequential fall caught the market off-guard as an earlier estimate pointed to a fall of 10 percent-20 percent, indicating that the semiconductor giant has become more cautious about the business outlook.

In the investor conference, TSMC CEO and Vice Chairman C.C. Wei (魏哲家) said he feared the company will not be able to achieve an earlier goal of posting a 5 percent-10 percent increase in sales for 2019. The chipmaker said later that the growth could be only 1 percent-3 percent.

The brokerage said, however, that it has maintained a "buy" rating on TSMC shares, as recent selling has made the stock more attractive. In addition, the chipmaker's lead over its peers in the advanced 7 nanometer process is expected to help the company secure more orders when buying in the semiconductor market recovers.

A U.S. brokerage said TSMC is expected to benefit from its technology in high-performance computing in the second half of this year and through the whole of 2020 to strengthen its bottom line, so it has left a "buy" recommendation on the stock unchanged.

Still, the American brokerage has cut its target price on TSMC shares to NT$240 from NT$260 on the back of the cautious outlook for the first quarter.

Another Asian brokerage said it has lowered a target price on TSMC shares to NT$211 from NT$240 and has also cut a recommendation on the stock to "underperform" from "outperform," as it forecast that the chipmaker's sales for 2019 could fall 3 percent from a year earlier.

A third Asian brokerage said TSMC's weaker-than-expected sales forecast for the first quarter shows that its production capacity is likely to fall, pushing its gross margin lower.

The brokerage said it has left a "hold" rating on TSMC shares unchanged but, cut its target price to NT$210 from NT$220.

CNA cannot identify the brokerages because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price-moving forecasts for specific stocks or the wider market.

(By Jeffrey Wu and Frances Huang)