Lowering Our United Microelectronics FVE on More Cautious 2023 Forecast; Long-Term Outlook Intact

We've reduced our fair value estimate for United Microelectronics to TWD 62 per share from TWD 64 after accounting for the effects of inventory correction, which may show after the company digests its backlog in the second half of 2022. UMC’s ADR price soared 4% during July 27 premarket trading, probably because of management’s reassurance that utilization and financial performance will remain strong for the remainder of 2022. The stock is undervalued, in our view, after assuming a sizable drop in 2023 and 2024 earnings per share arising from possible oversupply, as the market appears to price in no earnings recovery after 2024.