United Microelectronics Earnings: Undervalued Due to Budding AI Exposure and Stronger Pricing Power

Our fair value estimate on no-moat United Microelectronics Corp, or UMC, remains at TWD 62 per share as we lower our 2023 forecasts on a longer-than-expected inventory digestion but hold midcycle projections largely unchanged. Management’s downbeat comments on the fourth quarter are what prompted us to cut 2023 revenue and operating estimates by 5% and 3%, respectively, as we see a more modest recovery in the period. On a brighter note, we view UMC’s long-term competitiveness as strengthening based on two signs—the first is that management guides third-quarter average selling price, or ASP, should be 2% higher compared with the prior three-month period, the second is that UMC is moving to capitalize on the artificial intelligence trend. Our fair value estimate corresponds to almost 2.4 times price/book. UMC’s shares are undervalued, in our view, pressured by short-term concerns to demand and reignited geopolitical concerns between China and the U.S.