 Hey everyone, this is Dan with another episode of my TSM videos Taiwan Semiconductor. I bought TSM back in December of 2020 at $103 a share and I still own those shares and back in May of this year I cautioned my subscribers about the short-term dip in TSM because of a couple of local events in Taiwan Then on July 12th as TSM broke above the $120 resistance. I bought more shares and tweeted my subscribers about a trade now I believe we might be seeing yet another buy opportunity for TSM Why that's because TSM has been up 14% the last 10 days because of the announcement of price increases Under chips, I believe it will break through another resistance level pretty soon There are other bullish news about TSM. Let's get into the details First of all, let's review my price target set in the video that I posted on July 12th I Said at the time that my target was a hundred and forty dollars a share to be achieved by the end of October 2021 on that day TSM closed at one twenty two point six three as of yesterday TSM closed at one twenty three point nine seven It only moved up a little bit because of the various issues that we will discuss in the next few minutes Will I be increasing or lowering my price target? We'll talk about that in the next few minutes in my last video I talked about a few major events that have been affecting the TSM price They were the drought in Taiwan where TSM has almost all their manufacturing facilities And I talked about the recent surge of COVID cases in Taiwan And then we talked about the announcement of their second quarter earnings that happened on July 15 And then finally the capital spending concerns So today the drought problem has been resolved in Taiwan because of more rain that happened and The COVID cases are very much under control in Taiwan The second quarter earnings turn out to be very good. Then what remains is the capital spending concerns We'll talk about that extensively in the next few minutes If you like what you've seen so far, I'd like to encourage you to click the like subscribe and notification buttons So that you'll be notified when I publish my next video. Also, it'll encourage me to produce more videos like this in the future Thank you very much. Let's continue. According to the investor business daily The July 15 earnings announcement of TSM was very good and matched the estimates of major analysts However, the stock price did not quite go up. It went pretty much flat for the next month Why? We will talk about that later We mentioned previously that TSM announced that they would be spending a hundred billion dollars over the next three years A growth capacity to address the worldwide semiconductor shortage and that's the reason of the capital spending concerns On June 20th Morgan Stanley downgraded the stock and that was a severe blow to the stock price They lowered the price target from 655 Taiwan dollars a year to 580 Taiwan dollars per share and that's equivalent to a hundred and twenty dollars a share in the US market Since that time a hundred and twenty has been a very strong resistance level for TSM stock We'll look at the charts later on as of July 12th I predicted that the TSM EPS would be impressive even with the increase of capital spending expenditures Of course the announcement of the second quarter earnings came out on July 15 three days after my prediction and sure enough my prediction was correct except the concern about capital expenditures pretty much Overweight the positive news about a second quarter earnings and that's why the stock price is being fairly depressed ever since that time And then on July 12th in the meanwhile because the price broke above the resistance level of 120 remember the 120 was the Morgan Stanley level It went up to about 121. That's when I bought more shares Actually, I bought the shares at 121 dollars and 30 cents Of course as of today I've seen a small paper gain At this point I'd like to also remind you to subscribe to my Twitter account and the name is Dan market L So that you can receive live updates on some of my trades Let's continue and then as of August 25th It was reported that TSM was raising the price for their most advanced chips by up to 10% And more importantly they are raising the prices of their older chips by up to 20% And that will significantly increase their profit margin as well as revenues There is a very bullish piece of news about TSM Apple with Intel Supposedly are going to adopt the TSM 3 nanometer chip technology And the 3 nanometer chips are reportedly going to be introduced as early as next year 2022 In the meanwhile It's been reported that Samsung It's unlikely to be ready to produce the 3 nanometer chips until 2023 Let's take a closer look of the capital expenditures and depreciation expenses In the TSM 2020 10 F statement, which is the equivalent of the 10k statement of an American company Which corresponds to the annual report they mentioned that they would be depreciating the asset depending on Different types, which is very similar to the American standard For example, they would be depreciating land improvements over the course of 20 years buildings 10 to 20 years Machinery equipment five years and office equipment five years That means even though they're spending a hundred billion dollars in the next three years Not all 100 billion dollars will be depreciated in the income statement in the next three years Some of the spending items will be stretched out for over 10 to 20 years If you look at their revenue by technology again That's from their second quarter earnings conference in the presentation made by the TSM management You can see that their most advanced chips the seven nanometer chips and five nanometer chips Occupied 50% of their revenues and then the older chips Occupied the other 50% and that's a very significant chart. We will be referring to the chart later on Here I look at their total revenues for the last few years since 2017 on an annual basis the numbers are from Yahoo Finance and they are stated in thousand of Taiwan dollars and Translation between Taiwan dollars and US dollars is about 27 or 30 Taiwan dollars one US dollar If you look at a total revenue and then looking at the stated Reconciled depreciation that's again from Yahoo Finance and the net income for these years Then you can subtract the net income and depreciation from the total revenues and arrive at this other catch-all bucket I call the other expenses with these numbers I can calculate the ratios and it turned out that the reconciled depreciation has been running at about 27 25 28% of the total revenue Since they've been spending aggressively on capital investment starting almost six month or a year ago And then I went to the quarterly reports from Yahoo Finance starting from the second quarter of 2020 until the second quarter of 2021 and out of these four quarters when you see the progression of their percentage of Depreciation expenses as compared to the total revenues. It's been going up from 23% to 27% to 28% Even though it's been increasing which is logical, but it's not really shooting up dramatically And of course a lot of that is because of the smoothing effect of making some of the depreciation over the course of 10 to 20 years In the meanwhile the company has also been increasing their sales and profit margin We'll be talking about that later on if you look at TSM debt to equity ratio cause a smaller the ratio the better You can see that TSM is represented by the black line Indeed has been going up a little bit But compared to the industry some of their peers in the industry TSM is actually in pretty good shape For example Intel is the green line here. Definitely has a higher debt to capital ratio That means TSM actually is on better footing than Intel when it comes to debt and then NVIDIA also has a higher ratio than TSM The industry average also is higher The only company on this chart that's lower than TSM is advanced micro devices Which I also have been following and posting videos on in other words TSM so far still looks pretty good When it comes to debt to capital ratio, let's look at the cash flow. This is from Yahoo Finance If you look at the cash flow since 2017 The cash flow ran between 249 billion Taiwan dollars to 251 and then 145 that was a low year to 305 in 2020 And the trailing 12 month figure ending the second quarter of this year Was 256 a little bit decreased from 2020 but the deterioration was not dramatic And you can see where they got the money from The operating cash flow primarily from the profit increased dramatically compared to previous years As you might expect because they've been increasing prices on their chips So it went up from 2017's figure of 585 billion Taiwan dollars So 863 billion dollars and that that's a very significant increase And then they have financing cash flow of 35 billion dollars That means they borrow money although the borrowing is not very high Compared to their operating cash flow And overall they are a very solid footing on cash flow as well Definitely all in all TSM is still a very well managed company with awesome products This is from the management presentation when they announced the second quarter earnings They provided the guidance for the third quarter earnings They said the revenues would be between us 14.6 billion dollars and 14.9 billion dollars We'll be referencing this set of figures pretty soon And most importantly the operating profit margin would be between 38.5 percent and 40.5 percent We'll be referring to this set of figures also in the next few minutes Let's look at the net income before we do that. I'd like to bring back this pie chart We show previously with more advanced chip occupying 50 percent of the sales and the older chips At another 50 percent of sales and of course the price increase is actually higher In the older segment up to about 20 percent whereas on this more advanced segment It's also up to about nine ten percent with that knowledge I pulled out the historical earning figures from Yahoo Finance from 2020 to 2021 on a quarterly basis And then based on the latest quarter I increased their revenues By 10 percent and try to project the third quarter earnings And I arrived at 409 billion Taiwan dollars That corresponds to 14.6 billion us dollars and that matches pretty well with the management guideline of 14.6 to 14.9 billion dollars us And then for net income what I did was that I Used a net margin prediction from management of between 38.5 and 40.5 percent So I used the middle figure of 39 percent So based on the revenue here and a 39 percent net margin I arrived at the net income of 159 billion Taiwan dollars Which is equivalent to 5.7 billion dollars us for the third quarter. That's for net income Let's look at the sales and eps trends. This is from the better investing website the ssg stock selection guide database When you plot all these sales, you can see it's been steadily increasing And the slope of this dotted line projecting into 2026 Is that 19 annual growth rate very impressive The eps has been growing very steadily as well The solid line is the historical eps Following a very nice positive slope going upwards Projecting the future this dotted line is a 16 annual growth If you look at the growth in the last four years, it's actually much better than that So 16 annual growth is a very conservative estimate And we'll be using that number later on for calculating the stock price of tsm Now let's look at my own valuation of the company First I look at the figures for the major leading semiconductor companies in the world TSM is here at the trailing p ratio of 32 and yahoo gives them a forward p ratio of 26 And the peck ratio is only at 1.87 which is pretty reasonable And based on these figures and my prior calculations I decided to use an average forward p ratio of 29 which is reasonable compared to the p ratios of these other companies And also I decided to use the projected earning growth of 16 per cent per year remembering the preceding slide 16 came from this chart which is Definitely very conservative Then based on these assumptions I also started to look at their quarterly net income Remember in the last couple pages I calculated the net income of $5.7 billion for the third quarter of 2021 I assume that they will generate the same net income for the fourth quarter Actually, most likely the net income for the fourth quarter will be even higher Than a net income from the third quarter, but I want to be conservative So I assume the same and then we have the historical net income figures from the second and the first quarter Add them all up, then the net income for 2021 becomes $21 billion US And I carried this number into here the net income for 2021 And then based on the current net income stock price p ratio I am able to calculate the projected stock price for 2021 And that's $119 a share which is just about what we are now based on the eps growth of 16 and p ratio of 29 I am able to calculate the stock prices for 2022 and 2023 And they are 130 a 160 and from this range of figures I like to set a forecast of $140 a share to be achieved by the end of november 2021 Actually, I believe the stock price will go up much higher than that by year end I will adjust my price target later on as the events start unfolding about tsm So please stay tuned. Let's look at the other professional analyst opinion We'll compare today's figures with the figures back from july 12th 2021 when I published my last video The price back then was 122.63 today is 123.97 Move up just a teeny bit And my target is $140 a share to be achieved by the end of november 2021 Yahoo business pretty much kept everything the same Except they lowered the average target by just $1 from 140 to 139 Louis Nevilleur Actually downgraded them from b to c which is a hold Rating primarily because tsm has been so flat in the last two three months That's a quantitative aspect of Louis Nevilleur's rating Tip ranks calm however increased the average target from 127 to 131 and maintain the high target at 150 And maintain their rating at moderate buy cn money likes the stock gives them a buy rating Didn't change any target at all the street calm lower the rating from buy a to a minus And the target actually went up from 154 to 156 Therefore my target 140 is pretty much between the average and the high ratings Among these rating entities And that's why I'm very comfortable about a 140 target Let's look at the charts First of all, let's look at the daily chart for the last year The candlestick chart is tsm as we can see tsm went up by 57 percent in the last year Certainly very impressive The semiconductor etf smh went up by about 60 percent actually Performing a little bit better than tsm And the broad market as represented by qqq and spy went up by about 34 percent Definitely tsm I'll perform the broad market in the last year. This is the daily chart for the last six months It's not so good for tsm tsm went up by only 7.25 percent Whereas qqq went up by 25 percent spy by 20 percent and smh the semiconductor etf by 23 percent As you can see tsm has been pretty much flat since april If you look at the last 10 days, all of a sudden tsm woke up. It took a jump here on august 25th That's when the news came out about their latest round of price increases And certainly the price jumped up on that news And they have been up 12.54 percent in the last 10 days smh was up only 5.9 percent Whereas qqq was up only 3 percent and spy only 1.8 percent Definitely tsm outperformed the broad market in the last 10 days My prediction is that it will continue to go up in the next couple months Let's take a closer look of the chart on a daily basis Using the various indicators here from this chart We can see that the price has been following this very tight horizontal channel The rsi indicator has been getting up to about 70 which is to the point of almost being overboard And that's why the price might be going horizontal for the next few days It might even dip a little bit before it picks up momentum again On the dmi indicator we see a bullish buy signal starting about 10 days ago And the mhcd also flashed a buy signal about 10 12 days ago Actually that's starting from august 25th when the news about the price increase came out Let's take a closer look at the daily chart here We can see the $120 resistance level there was a Morgan Stanley prediction remember And that's actually one of the lines on the Fibonacci retraction diagram I'll talk about that later on the price was struggling to break through this level for several times And finally it broke through this level four days ago And it's now marching up towards this next level resistance at 125 which was achieved around July 15 16 or so It is critical for us to see whether it'll penetrate 125 If it gets above 125 in the next two three days I will most likely buy more shares because that will be a very bullish sign On the other hand if it starts going down I might sell some of the shares that I bought back on July 12 to lock in some of my short-term profits And I'll still be holding some shares for the long term and meanwhile on the rsi indicator again We are seeing rsi being fairly high at about 70 it's almost overboard And dmi is still bullish macd is still bullish Let's look at the support and resistance levels I drew this Fibonacci retraction diagram using the maximum point achieved on February 16 2021 at about 142 And 20 cents and I use this point on August 20th at about 107 dollars as a minimum point Drew the Fibonacci retraction diagram From that I see resistance at 125 Which is the Fibonacci 50% level And also the upper bowling demand so that'll be a very strong resistance It's very important at the price breaks through this resistance Before it can go up any further and that's for me will be a buy signal when the price does penetrate that level And get support actually from that level Then the next level up will be 129 which is Fibonacci 38% Next level up 134 Fibonacci 23% And then finally the Fibonacci 0% 142 which is all time high achieved back in February For support I see the next support level at 120 That was a Morgan Stanley target level. It was a strong resistance level now It could potentially turn into a support level The next level down be 117 which is a middle of the bowling demand The next level down 115 Fibonacci 78% And coincidentally that's the 50 100 day and 200 day moving average All three lines are converging to that point So if the price ever drops near that point that'll be a very strong support level Then the next level down will be 107 which is Fibonacci 100% And that's this level This is a recap of my price target Which is $140 to be achieved by the end of November 2021 And as of yesterday the market closed at $123.97 What are my strategies? First of all, I bought shares on July 12th at $121.30 I'm seeing a small profit now Actually, as I mentioned, I bought my first batch of shares back in December of 2020 And definitely I'm seeing a good profit on that I would buy more shares if the price gets about $125 Resistance and start getting support at that level And I will continue to keep some shares for the long term because I'm bullish about TSM for the long term I will sell when the price drops at key resistance levels or when adverse news breaks out I'll be swing trading half of my shares and keeping half of my shares for the long term And then I will buy when price goes up at key support levels or when positive news breaks out If you like what you've seen so far, I'd like to suggest that you click the like subscribe and notification button Thank you again. Let's continue At this point, I'd like to remind you to subscribe to my twitter account in addition to subscribing to my youtube channel And that's why you can get my latest updates on my trades as well as any new developments with regard to TSM As well as some of the other stocks that I analyze As usual, I will very much welcome your comments questions and suggestions That you can send by way of my twitter account as well as my youtube channel I have been having some very interesting discussions with my subscribers At this point, I'd like to remind you that I'm not a financial advisor I share my analyses and stocks trading strategies for educational purposes only If you want to buy and sell shares You should make your own decisions and you should definitely consult with your financial advisors before you do so This is about wraps on my video for now. I will chat with you again in the next few days In the meanwhile, I'd like to wish you the very best of luck with your financial investments You