1、 Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: https:/ RegisterHS
2、BC 9thAnnual China Conference10 20 May, 2022 Semiconductor correction now driven by growing demand concerns versus supply-side concerns earlier Too early to bottom-fish, as share price correction hasnt yet fully reflected potential earnings downside and de-rating risk Our top pick is TSMC, a defensi
3、ve play given its dominance in advanced foundry; downgrade UMC and Vanguard to Hold Demand concerns outweigh supply constraints going into 2H. While we expect strong 1H22e earnings for most semiconductor companies, we foresee limited upside for earnings from 2H22e onwards. Increasing macro concerns,
4、 such as rising rates and inflation, plus growing signs of slowing consumer demand for items such as PCs and smartphones, are becoming a bigger issue than semiconductor capacity growth in 2023e and will likely be a catalyst for a 2H22 semiconductor correction; still, we see signs of semiconductor sh
5、ortages easing across most subsectors and rising inventory levels at the work-in-progress (WIP) level and fabless integrated circuit (IC) players. Year-to-date share price correction doesnt yet fully reflect risks to earnings, de-rating potential. We believe the potential for a further de-rating has
6、 not been fully priced in, and we expect consensus to cut earnings, but we hold off on Reduce ratings at this stage, as the magnitude and timing of a semiconductor correction remains hard to assess. Under our most bearish scenario, we may a return to pre-pandemic gross margin levels and trough 2018
7、multiples, and in that case most of our semiconductor coverage universe could depreciate more. For now, we think it is too early to bottom-fish and will revisit the sector in 4Q22 or early 1Q23 to assess the situation then. TSMC (our only Buy) is most defensive on its dominance in advanced foundry.
8、We stay cautious on the IC fabless sector, as we expect earlier gross margin pressure there than in the rest of the semiconductor supply chain; so we maintain our Holds on MediaTek and Novatek. We see rising risk to second-tier foundries UMC and Vanguard as we expect ASPs to peak in 2Q22, and we dow
9、ngrade both to Hold. We expect TSMC to outperform given its dominance in advanced foundry, which remains strong based on sustainable growth in high-performance computing (HPC). 3 May 2022 Frank Lee* Head of Technology Research, Asia The Hongkong and Shanghai Banking Corporation Limited .hk +852 2996
10、 6916 Carol Juan* Analyst, Technology HSBC Securities (Taiwan) Corporation Limited .tw +886 2 6631 2862 Davy Hsu* Associate HSBC Securities (Taiwan) Corporation Limited .tw +886 2 6631 2869 Ted Lin* Associate HSBC Securities (Taiwan) Corporation Limited .tw +886 2 6631 2870 Pulkit Aggarwal* Associat
11、e Bangalore * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Asia Technology Equities Semiconductors & Equipment Asia Summary of rating and target price changes, key data Market cap Year-to-date Current _Target price _ _ Ra
12、ting _ Upside/ Company Ticker Currency (USDm) correction price Old New Old New downside TSMC 2330 TT TWD 463,855 -15% 526.00 900.00 900.00 Buy Buy +71% UMC 2303 TT TWD 18,847 -32% 44.40 95.00 45.00 Buy Hold +1% Vanguard 5347 TT TWD 5,490 -38% 98.50 165.00 110.00 Buy Hold +12% GlobalFoundries GFS US
13、USD 26,326 -24% 49.50 64.00 45.00 Hold Hold -9% SMIC-H 981 HK HKD 23,046 -18% 15.30 21.00 16.00 Hold Hold +5% SMIC-A 688981 CH RMB 22,850 -27% 38.57 60.00 40.00 Hold Hold +4% MediaTek 2454 TT TWD 43,937 -32% 808.00 960.00 840.00 Hold Hold +11% Novatek 3034 TT TWD 7,522 -33% 363.50 515.00 400.00 Hold
14、 Hold +10% Note: Priced at close of 27 April 2022 Source: Bloomberg, HSBC estimates Semiconductor correction no longer if but when and how much 每日免费获取报告1、每日微信群内分享7+最新重磅报告；2、每日分享当日华尔街日报、金融时报；3、每周分享经济学人4、行研报告均为公开版，权利归原作者所有，起点财经仅分发做内部学习。扫一扫二维码关注公号回复：研究报告加入“起点财经”微信群。 Equities Semiconductors & Equipment
15、3 May 2022 2 Investment summary 3 Demand is the emerging risk 6 Top pick TSMC and a close look at our Hold-rated stocks 24 TSMC 26 UMC 29 Vanguard 33 GlobalFoundries 37 SMIC 40 MediaTek 45 Novatek 49 Disclosure appendix 57 Disclaimer 60 Contents 3 Equities Semiconductors & Equipment 3 May 2022 Deman
16、d concerns overshadow supply-side concerns going into 2H22 We believe the drivers of the semiconductor correction have shifted from supply-side issues, especially for mature foundries that are set to ramp up capacity into 2023e, towards the sustainability of end demand in 2H22 amid macro concerns li
17、ke rising rates and inflation. We see increasing signs of bottom-up demand weakness, especially in smartphones and PCs, which continue to disappoint the market. Still, we remain constructive about overall server demand due to datacentre capex and as well as overall automotive semiconductor demand fr
18、om rising content growth, tough these areas only collectively account for 20% of overall semiconductor demand which will not be enough to compensate for demand weakness in other applications. We have also started to see increasing signs of component shortages easing across most of the semiconductor
19、supply chain starting in 2Q22 as highlighted on page 14 while y-o-y monthly sales growth of most IC fabless subsectors such as microcontrollers (MCUs), power ICs, and driver ICs have shown clear signs of deceleration. Despite ongoing concerns over supply-side disruptions from Chinas pandemic-related
20、 lockdown, we expect the demand slowdown in mainland China to have an increasing impact that could limit upside from re-stocking after the lockdown eases. Overall, aggregate semiconductor inventory has also been building up more aggressively at the work-in-progress (WIP) level than end market demand
21、. However, overall inventory days still look reasonable given semiconductor ASP hikes across the supply chain have enabled the value of industry revenue and COGS to rise on par with inventory value. Nevertheless, if we take out the impact of higher ASPs going forward, overall inventory on a unit bas
22、is is likely to look higher vs value basis. We are also seeing inventory days rising with Taiwanese fabless IC companies facing historical peak levels of 110 days at the end of 4Q21. Share price correction y-t-d has not fully factored in earnings and de-rating risk The NASDAQ and Philadelphia semico
23、nductor index, a proxy for the overall tech and semi industry, have both corrected by -21% and -28% y-t-d versus the 2020 corrections of -30% and -36%, driven by COVID-19, and are now approaching the magnitude of the 2018 semiconductor cyclical correction levels of -23% and -17%. We have also seen a
24、 share price correction y-t-d of -33% and -32% for large fabless names such as Novatek and MediaTek and an even bigger correction of -37% to -49% for smaller fabless names such as Parade and Silergy. Second-tier fabless names like UMC, Vanguard, and Global Foundry have also corrected by -24% to -38%
25、 y-t-d. Hence, the overall share price correction y-t-d has somewhat reflected a “soft landing” scenario for the semiconductor sector. Investment summary Its now all about demand worries as they overshadow supply issues Y-t-d correction doesnt yet fully price in risks to earnings, valuations TSMC ou
26、r top pick; most defensive on advanced foundry dominance Equities Semiconductors & Equipment 3 May 2022 4 Nevertheless, we believe there remains the potential for more share price declines if we factor in potential earnings downside and a further re-rating. We have yet to see any significant consens
27、us earnings revisions y-t-d to 2022e or 2023e to reflect demand concerns while current valuations generally remain above pre-pandemic 2020 levels or 2018 trough levels, which were the most recent semi corrections. As it remains difficult to assess the earnings downside risk, we have conducted a scen
28、ario analysis, with our most bearish scenarios assuming the gross margin for most semiconductor companies returns to pre-COVID-19 levels, having benefited from ASP hikes over the past two years. Under these bearish scenarios, along with a potential de-rating toward 2018 trough levels, we see the pot
29、ential for further 30-40% share price declines on average for most of our semiconductor coverage names before we would assume an improved risk-reward, when it would arguably be time to start to bottom-fish. Potential to revisit the semiconductor sector in 4Q22 or 1Q23 Using the last semiconductor co
30、rrection (in 2018) as a benchmark, it lasted about three quarters, starting in 2Q18-3Q18 and bottoming in 1Q19. We also believe the magnitude of the 2018 semiconductor downturn was partly shortened by Huaweis unprecedented aggressive semiconductor procurement in 1Q18 due to the China-US trade war an
31、d concerns over a semiconductor ban. We believe the length of the next semi correction may be similar to 2018 and shorter than past historical semiconductor cycles given the strong semiconductor content growth in applications such as servers and autos. Hence, we believe a better time to revisit the
32、semiconductor sector could be in 4Q22 or 1Q23, assuming that it also takes at least three quarters for a potential correction to complete, starting from 3Q22 as the market digests potential earnings downside risk. IC fabless seeing earlier share price and earnings downside The potential remains for
33、further downside to IC fabless names, in our view, despite the latest significant share price correction, as they will likely see earlier gross margin pressure, possibly in 2Q22 or in 3Q22, as they will be unlikely to pass on higher foundry ASP hikes in 2Q22. We also believe the upward gross margin
34、trend that most IC fabless names have enjoyed over the past two years will begin to normalise toward the long-term historical average. Among the stocks under our coverage, we maintain Hold ratings on MediaTek and Novatek with target prices of TWD840.00 and TWD400.00 given their y-t-d share price cor
35、rection -32% to -33%. Both names are now trading below their previous historical trough PEs. However, under our most bearish scenario (bear case #2), we see room for further earnings downside of -17% and -32% for MediaTek and -2% and -18% for Novatek in relation to our base case 2022e and 2023e EPS
36、forecasts. Second-tier foundries will see increasing earnings downside risk in 2H22 and into 2023e We remain structurally more positive about the overall mature foundry business as we expect the overall gross margin trend and ROE to remain above historical levels. Nevertheless, we do see an increasi
37、ng downside risk to second-tier foundries starting in 2H22 with more limited foundry ASP hikes and potentially lower utilisation rates vs previous market expectations. Hence, we maintain our Hold ratings on GlobalFoundries and SMIC but downgrade UMC and Vanguard to Hold on lower target multiples. Ou
38、r revised target price of TWD45 for UMC is based on a lower target PB of 1.7x (earlier 3.9x) based on the stocks average PB in 2020, when UMC had started to see a re-rating given the companys improving profitability. Despite our concerns over a potential cyclical slowdown, we do expect UMCs gross ma
39、rgin to remain above the previous trough levels even under our bearish scenarios. Hence, we expect UMCs potential PB to be in line with the stocks average PB level in 2020, when UMC first started to enjoy structurally higher profitability. However, our revised target price of TWD110 for Vanguard is
40、based on a lower target PE of 12x (from 18x) applied to our 2022e EPS, as 12x was the multiple we used to value the stock during the 2018-19 period. We are not using 2020 multiples, as we have for UMC given we do not see as much structural improvement in 2020 for Vanguard as we did for UMC, which ha
41、d a more significant change in its product portfolio. 5 Equities Semiconductors & Equipment 3 May 2022 We have also looked at two bear-case scenarios with #1 assuming an ASP decline in 2H22 with the mature foundry ASP falling to pre-COVID-19 levels by end-2023 and #2 assuming an ASP outlook similar
42、to that of #1 but with a lower utilisation rate in 2023e, back to the previous semi correction levels of 2018. Under both bear-case scenarios, we estimate moderate earnings downside risk of 3-15% in 2022e, but more in 2023e, with 20-36% downside. TSMC remains our top pick given its market dominance
43、in advanced foundry We expect the company to continue to outperform the rest of the semiconductor supply chain. TSMC management recently guided that overall full-year 2022 sales would meet or exceed its previous guidance of mid- to high 20s percentage increases. However, TSMC did not raise its full-
44、year industry semi or foundry revenue growth guidance of 9% and 20%, respectively, and this suggests that the improving 2022e sales outlook is more company-specific than a reflection of the industry. Therefore, we expect TSMC to continue to outperform the foundry and semi industry given its dominanc
45、e in advanced foundry, which remains strong based on sustainable growth in HPC. TSMC also expects more smartphone and HPC customers to return in 2022e, enabling them to continue to gain share. Hence, we estimate only 3% and 11% EPS downside in 2022e and 2023e, respectively, under our bear case 2. Po
46、tential downside to HSBC and consensus from scenario analysis _ Bear case 1 _ _ Bear case 2 _ _ HSBC EPS _ _ Cons EPS _ _ vs HSBC_ _ vs Cons _ _ vs HSBC _ _ vs Cons _ 2022e 2023e 2022e 2023e 2022e 2023e 2022e 2023e 2022e 2023e 2022e 2023e TSMC 33.16 35.53 32.83 36.44 -1% -5% 0% -7% -3% -11% -2% -13%
47、 UMC 6.77 5.48 5.94 5.4 -10% -25% 2% -24% -13% -36% -1% -35% Vanguard 9.2 7.76 9.88 8.97 -3% -22% -10% -33% -3% -34% -10% -43% GlobalFoundries 1.52 5.82 1.55 4.93 -9% -20% -10% -6% -15% -27% -17% -13% SMIC 0.21 0.19 0.22 0.19 -5% -21% -9% -21% -5% -32% -9% -32% MediaTek 77.58 73.46 80.27 85.87 -12%
48、-13% -15% -25% -17% -32% -20% -42% Novatek 57.56 46.55 64.59 54.34 -2% -8% -12% -21% -2% -18% -12% -30% Source: HSBC estimates, Bloomberg consensus Equities Semiconductors & Equipment 3 May 2022 6 Impact of rising rates and inflation just starting to be seen in demand Since 4Q21, we have seen demand
49、 concerns emerge, driven by the impact of rising inflation and interest rates. HSBC US economist Ryan Wang is now looking for a cumulative 225bp in hikes in 2022 and a further 50bp in 2023, with quantitative tightening likely to start in 2Q22e. Rising US inflation matters for the Asia Technology sec
50、tor, as its the big macro uncertainty that could lead to a negative drag on overall consumption (see the exhibits below for US headline and core CPI) as headline CPI rose 1.2% m-o-m in March bringing the y-o-y CPI rate to 8.5% in March from 7.9% in February. HSBC is now looking for CPI inflation to
