Ride the wave of 5G

Investment Thoughts

04 Jun 2020

What Happened? Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, just reported a 16.1% rise in fourth-quarter profit on Thursday, with market analysts attributing the strong results to solid demand for emerging technologies such as 5G and high-performance computing (HPC) devices
 
UBS View: We believe TSMC is well positioned to outpace growth in the semiconductor foundry industry for two reasons: (1) TSMC has a significant lead over its peers and its move to advanced nodes should accelerate market share gains and (2) Increasing contribution from new segments like high performance computing and Internet of Things should drive most of the growth. We think Qualcomm is attractively valued and well positioned to benefit from key emerging trends like 5G and Internet of Things. The settlement with its largest customer Apple last year should remove a major overhang on royalty rates, which we expect should improve the visibility on its high margin licensing unit.
 
Such views can be implemented in many ways, and examples are illustrated below. The examples have not been checked for suitability, to find out more about what may be suitable for you please speak to your client advisor. 

Example of how investors can express this view:
Autocallable Reverse Convertible Notes (RCNs) on selected stocks

  • Enhance portfolio yield with 12% p.a. coupon.
  • The potential to buy the stock at a 29.06% discount to the current price.
  • Stock selection is based on UBS Research buy or neutral rating and large market capitalization.

Key Terms*

Tenor

6 months

Currency

USD

Underlying(s)

Costco Wholesale Corporation (COST US) and Walmart Inc. (WMT US)

Strike Level

75.45%

Coupon (p.a.)

10%

Autocall Level

98%

Coupon / Autocall Period Frequency

Monthly

Issuer (Rating)

UBS AG acting through its London branch (S&P:A+/Moody's:Aa3)

Worst-of Underlying

The Underlying with the lowest value of (Spot price / Initial price) at the time of observation

Payoff

Early redemption: The note will be early redeemed at 100% of the denomination with coupon for that period if the worst-of underlying closes at or above the Autocall level at each periodic observation date

At maturity:

  • Case 1: If the worst-of underlying closes at or above its Strike level, the investor will receive the coupon for that period, plus 100% of the denomination
  • Case 2: Otherwise, the investor will receive the coupon for that period, plus physical delivery of the worst-of underlying at Strike level
     

The same RCN structure can be tailored with 1 stock underlying, The Taiwan Semiconductor Manufacturing Company, Ltd. (TSM US), with indicative strike at 87.79% holding all other parameters the same.
 
For alternative stock underlyings, kindly refer to the UBS CIO Paper.  

Contact

  • In case of interest please contact your Client Advisor

Key Risks: 

  • Return is limited to the coupon amounts.
  • You will not receive dividends or other income that may be paid on the Underlying(s)
  • A loss can result if the Underlying(s) closes below the Strike Level at maturity
  • Before maturity, the realisable value of the product may fall below the issue price even if the Underlying has appreciated against its initial price.
  • In a worst case scenario, the product becomes worthless and you will lose the capital invested
  • In the event that the product is redeemed early, you may not be able to reinvest the redemption proceeds in another instrument with a comparable return profile.
  • The product is unlisted and there may not be an active or liquid secondary market.
  • You are fully exposed to both the credit risk and the credit default risk of the Issuer. Should the credit rating of the Issuer deteriorate over the life of the investment, the product's value may be affected. Should the Issuer default, you may lose all capital invested and any return that may otherwise be payable/earned

Hong Kong & Singapore Private Clients

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  • an "accredited investor" or "institutional investor" as defined in the Securities and Futures Act (Chapter 289) of Singapore

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