UMC Surprises With Denso Deal and Stellar Gross Margin; Lift FVE to TWD 64 on Better Profitability

We hike our fair value estimate on United Microelectronics Corp, or UMC, to TWD 64 per share after factoring in higher 2022 gross margins, expansion in Singapore and the latest agreement with Denso. UMC’s share price surged 8% on Thursday Taiwan trading as a result of gross margin beat and a better long-term outlook including contribution from Denso expected in 2024. We think the stock has ample margin of safety since we have already assumed a massive drop in 2024 and 2025 gross margins arising from possible oversupply.