Win Semiconductors' Long-Term Outlook Clouded by Short-Term Smartphone Weakness; Shares Undervalued

We cut our fair value estimate on Win Semiconductors to TWD 423 per share, corresponding to 32 times 2022 P/E (and 25 times 2023 P/E), because of the slightly lower revenue and midcycle margins due to the higher capital expenditure estimates up to 2025. Our lower revenue and gross margin forecasts reflect softer pricing in 5G and Wi-Fi products and higher depreciation expenses. However, we still regard shares as attractive because Win Semiconductors benefits from multiyear trends like nonsmartphone 3D sensing and low-orbit satellite, and investors can accumulate shares to gain such exposure. We believe the inclusion of Face ID on new Apple devices, some of which may be released as early as March, could lift sentiment in the stock. Further down the road, a ramp in lower-orbit satellite communications demand, continued 5G base station additions and non-iPhone 3D sensing applications could move the share price closer to our fair value estimate.