Daily Brief Equity Bottom-Up: TSMC (2330.TT;TSM.US): Lukewarm 4Q23F Outlook and more

• The revenue/ GM/ OPM/ EPS/ ROE is USD$17.57b/ 54.3%/ 41.7%/ NT$8.14/ 25.8% in 3Q23. The revenue/ GMO/ OPM is US$18.8-19.6bn/ 51.5-53.5%; OPM: 39.5-41.5% in 4Q23F guidance.
• Moving into 4Q23F, TSMC expects their business to be supported by smartphone seasonality, while AI-related demand continues to be strong. 
• TSMC anticipates 2024F to experience healthy growth, and TSMC has noticed a resurgence in demand for smartphones and PCs.

• The investigative analysis highlights a deceptive and confusing saga involving the Vedanta Group’s semiconductor venture in India. 
• The group skillfully blurred the lines between Vedanta Ltd (VEDL IN)  and Vedanta Resources (VED LN), creating an impression that the semiconductor business was under Vedanta Limited, despite previous clarifications. 
• Eventually, regulatory authorities penalized Vedanta for disclosure lapses, exposing governance concerns and a lack of transparency in this complex corporate maneuver.

• There is little in the long-term and current figures of Bank Of China Ltd (H) (3988 HK) that leaves one assured of strength, stability, earnings power, and rather the opposite.
• Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern.
• The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago – with much more geopolitical risk.

• Recruit’s share price is down more than 10% over the last 30-days despite there being a significant improvement in job openings in the US for the month of August.
• The web traffic on both Glassdoor and Indeed also have declined in September compared to August where there was a MoM improvement in August 2023.
• Though Recruit has guided for a decline in earnings, we think there is further downside to the company’s guidance.

• China Overseas Property (2669 HK) announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company. 
• The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.
• In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock.  Further derating is likely. 

• Telix Pharmaceuticals (TLX AU) reported net operating cash inflow for 3Q23 of A$21.4M, a A$10.6M improvement on the prior quarter and fourth consecutive quarter of positive operating cash flow.
• In 3Q23, revenue from U.S. sales of Illuccix improved 13% QoQ to A$130.6M. Telix is progressing new marketing authorizations for Illuccix in several jurisdictions, including the U.K., EU, and Brazil.
• Telix announced preliminary results of its phase I ProstACT SELECT study. Although the study achieved primary endpoints, the findings noted grade 3 and 4 hematologic events.

• TSMC reported 3Q23 results yesterday — Gross margin beat expectations and remains near historical highs.
• TSMC maintains expectation of a 15-20% earnings CAGR through 2026E. Gross margin guided to remain near all-time highs.
• Accumulate TSMC as a Structural Long position — Undemanding multiple can drive Target Price NT$760 for ~40% Upside.

• We listened to the conference call held by Whitehaven Coal (WHC AU) to update investors on its acquisition of BHP’s coking coal mines and  Q2 2024 production. 
• Based on spot prices of coking coal over 350 USD/ton and cash costs of 20% lower than the average of 2 years, the EV-EBITDA of acquisition is 1.8x
• The acquisition could be massively accretive if coking coal prices remain stronger for longer as the company pivots its strategy to becoming a large met coal producer. 

Basilea presented a combination of eight presentations and abstracts on its antibiotic ceftobiprole (at the Infectious Diseases Week 2023 conference in Boston), which support its ongoing regulatory application with the FDA. The new data provide additional evidence on the drug’s utility and highlight ceftobiprole’s antimicrobial activity against clinically relevant pathogens, including MRSA, and support the dosing regimens utilised in the three Phase III studies for the three indications currently undergoing priority review by the FDA. As a reminder, the FDA has set a PDUFA date of 3 April 2024, which suggests that Basilea could potentially receive a regulatory decision for its lead antibiotic asset in the US in early-Q224. The FDA’s decision would be a significant catalyst for Basilea, considering the high prevalence of MRSA in US. The new data provide incremental support to the FDA application and instil confidence in a favourable outcome, in our view.

Epwin’s H123 results confirmed a solid performance that was characterised by weaker volumes offset by cost control, higher prices and some contribution from M&A in tough markets. Longer term, well-established growth trends imply that Epwin is well placed to leverage off increasing demand for its energy-efficient and low-maintenance building products. Management action contributed to overall margin expansion, a feature that we expect to continue in FY23 and FY24 as material cost pressures become less of a headwind. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. We have maintained our forecasts but highlight the low valuation and attractive 6.7% yield.