On Thursday, Morgan Stanley reaffirmed its Overweight rating and NT$860.00 price target for Taiwan Semiconductor Manufacturing Co. Ltd. (2330:TT) (NYSE: TSM), citing the company's ability to pass on additional costs to customers due to its value-added services.
The firm's analyst pointed out that Taiwan Semiconductor Manufacturing Company (TSMC) offers global manufacturing flexibility and technological advancements that justify the potential for cost pass-through to clients.
The analyst also touched on the future pricing strategy of TSMC, noting that management has suggested customers will likely need to shoulder some of the additional costs going forward. Although the specific figures are confidential, the company has a history of raising prices, with a 10% increase in 2022 and a subsequent 5% hike in 2023.
This pattern suggests that another increase, potentially around 5% for 2025, could be on the horizon, reflecting the significant value TSMC provides.
The expectation of price adjustments is based on the company's past performance, where TSMC has successfully implemented price increases. The analyst's confidence is bolstered by the historical data that shows TSMC's ability to enhance its pricing while maintaining a strong market position.
Looking ahead, Morgan Stanley anticipates that TSMC's gross margin will see a recovery, reaching 53-54% in 2025. This projection is underpinned by the analyst's belief in TSMC's pricing power and the added value it brings to the semiconductor industry, which could allow the company to navigate margin pressures effectively.
The discussion of TSMC's pricing strategy and margin outlook highlights the firm's strategic positioning in the semiconductor market. With its advanced technology and manufacturing capabilities, TSMC appears poised to address cost challenges while maintaining its financial health.
InvestingPro Insights
In light of the recent analysis by Morgan Stanley, InvestingPro data provides a more detailed look into Taiwan Semiconductor Manufacturing Co. Ltd.'s (NYSE: TSM) financial health and market performance.
The company's market capitalization stands strong at $632.11 billion, reflecting its significant presence in the semiconductor industry. While TSMC's revenue has seen a slight decline of 4.51% over the last twelve months as of Q4 2023, its gross profit margin remains robust at 54.36%, supporting Morgan Stanley's outlook for a gross margin recovery to 53-54% by 2025.
The company's P/E ratio, a key metric for valuation, is currently at 24.37, with a slight adjustment to 24.85 when considering the last twelve months as of Q4 2023. This indicates a fair valuation relative to earnings, which could be a factor in its ability to implement price increases as suggested by Morgan Stanley. Moreover, the recent dividend growth of 21.97% and a dividend yield of 1.27% as of the 109th day of 2024, showcase TSMC's commitment to returning value to shareholders.
InvestingPro Tips highlight that TSMC's technological leadership and manufacturing flexibility are critical factors in its pricing strategy. With the next earnings date set for April 18, 2024, investors will be keen to see how these strategic advantages play out in financial performance.
For those looking to delve deeper into TSMC's market prospects and strategic positioning, InvestingPro offers additional tips and metrics. To access these insights and enhance your investment strategy, consider using the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. With several more InvestingPro Tips available on the platform, investors can gain a comprehensive understanding of TSMC's market dynamics.
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