Win Semi Earnings: Coming Quarters To Improve, Shares Depressed by Next Six-Month Outlook

Our fair value estimate on Win Semiconductors 3105 is tapered to TWD 253, corresponding to 2024 adjusted P/E of 31 times chiefly on lower 2023 revenue and earnings forecasts. The stock is enticing to us amid early signs of a recovery starting from the second quarter. We think it is not too late as smartphone recovery has only just started, and the market remains skeptical of recovery over the next two to three quarters. The share price also does not seem to price in possible upside from satellite and autonomous driving.

Win Semi’s first quarter of 2023 revenue dived 19% from the previous quarter to TWD 2.86 billion, above our projections due to revaluation gains of Vanchip shares that it holds. Gross margin excluding revaluation disappointed us at 4.2%, as utilization was 20% instead of the 25% we projected. Guidance for the second quarter is upbeat with revenue growing low-30s sequentially to around TWD 3.8 billion, and “core” gross margins rebounding to the midteens. Summing up management guidance, lower inventory amounts (which dipped 2% sequentially), and Android brands cautiously adding rush orders, we believe Win Semi’s financials should improve for the rest of the year. However, we reduce our 2023 revenue forecasts by 8% and EPS estimates by 76% due to probable milder recovery, especially in the third quarter.

The company maintains its 2023 capital expenditure budget at TWD 4 billion, mostly allocated to maintenance and finishing construction of the Kaohsiung cluster. This does not change our view that revenue from incremental capacity from the Kaohsiung cluster should arrive in 2026. Management added it is cheaper to finish the construction at Kaohsiung, but subsequent steps will be paused until demand returns.