Taipei, July 24 (CNA) Although Taiwan Semiconductor Manufacturing Co. (TSMC) plans to spend US$100 billion in investment over the next three years as it seeks to expand, the world's largest contract chipmaker is expected to absorb the large spending on the back of high growth, according to Taiwan Ratings.
In a research note, Taiwan Ratings, a local partner with S&P Global Ratings, said the US$100 billion expenditure is higher than the ratings agency had previously anticipated, but the chipmaker "has sufficient financial headroom to support higher capital expenditure over the next 24 months. This will likely prevent material deterioration in TSMC's debt leverage over the same period."
In April, TSMC's CEO C.C. Wei announced the US$100 billion investment plan over the next three years, which aims to use more resources for research and development and upgrading technologies, to maintain the company's lead over its peers on the global market and expand its geographic footprint.
On the back of its intensified efforts at expansion, Taiwan Ratings said, TSMC's EBITDA (earnings before interest, taxes, depreciation, and Amortization) margin could rise accordingly to absorb much of the proposed increase in capital expenditure.
According to Taiwan Ratings, TSMC's EBITDA margin will grow from 67.3 percent in 2020 to 67.5-69.5 percent from 2021-2022.
In addition, Taiwan Ratings forecast TSMC's sales will grow 14-18 percent from a year earlier over the 2020-2021 period, an upgrade from the rating agency's previous estimate of 5-10 percent growth.
"The current up-cycle in the semiconductor industry will continue to benefit TSMC through at least 2022, given still-strong demand from significant global investments in 5G networks, high performance computing, and electrical vehicles," Taiwan Ratings said.
"The continued popularity of working from home amid the ongoing pandemic along with its clients' response to geopolitical risks add to demand for TSMC's products," Taiwan Ratings added.
Riding the wave of solid global demand and the growing contribution from its advanced 5 nanometer process, the latest technology TSMC has launched into mass production, the chipmaker is expected to continue to see an increase in its average sale price for the rest of 2021 and 2022.
Over the next two years, Taiwan Ratings said, TSMC is expected to maintain production capacity utilization at 93-95 percent.
Taiwan Ratings said the proposed investments could lead to negative discretionary cash flow of NT$50 billion (US$1.79 billion)-NT$150 billion annually in 2021-2023.
However, the ratings agency still forecasts that TSMC will stay debt free on an adjusted basis over the period due to its strengthening operational cash flow and ample cash on hand.