BofA: United MicroelectronicsRating & Price Ob

BofA: United Microelectronics

Rating & Price Objective Changes

> Price Objective (PO): Raised from NT$63 to NT$120 (and ADR PO raised from US$9.96 to US$18.97), based on a 17x target 2027E P/E multiple (up from 15x, sitting in the upper half of its historical 2x–25x range).

Earnings & Financial Forecasts

> EPS Estimates: Adjusted to NT$5.11 for 2026E, NT$7.09 for 2027E, and NT$9.60 for 2028E, driven by improving capacity utilization and wafer pricing.

> Revenue & Margins: Gross margins are projected to lift to 31.9% in 2026 and 36.9% in 2027 (based on 85% and 90% utilization rates, respectively), though analysts note these sit below overly aggressive market expectations of 40–45% GMs at full capacity.

Core Investment Thesis & Skepticism

> Overhyped Thematic Optimism: While UMC's foundational mature-node business is recovering, BofA believes market expectations are overly inflated regarding:

1. Silicon Photonics: Projected to represent only a small fraction (3% in '27 and 6% in '28) of UMC's total sales. Specialty Memory Production: Viewed merely as a cyclical fab filler.

2. Intel Collaboration (12nm): Limited customer traction is anticipated.

3. Traditional Tech Exposure: Over 80% of UMC's sales remain tied to traditional tech products, presenting downside risks if inventory builds moderate and customer pushback on pricing intensifies.

Industry & Mature Node Fundamentals

> Supply & Demand Dynamics: Mature 12-inch industry utilization (ex-China) is projected to improve from the low-80% range in 2026 to 85–90% in 2027. 8-inch node fundamentals look even more encouraging, moving from high-80% utilization in 2026 to 90–95% in 2027.

> Capacity Adjustments: Capacity output is influenced by decoupling trends, TSMC retiring older 6", 8", and mature 12" equipment (-130k WPM through 2025–2027), and Samsung cutting back 8" and selective mature 12" operations.

Recent Performance & Near-Term Outlook

> 2Q26 Tracking Stronger: Sales grew 13% QoQ, aligning with resilient consumer demand reported by major fabless players.

> Caution Ahead: While 3Q26 could see resilient early builds (+10%) as customers try to get ahead of cost hikes, analysts advise caution regarding year-end inventory adjustments and pricing pushback.

$United Microelectronics(UMC.US)