Tuesday, HSBC adjusted its price target on shares of United Microelectronics Corp (2303:TT) (NYSE: UMC), a semiconductor foundry, to NT$47.00 from the previous NT$56.00. The firm has kept its stock rating at Hold.
The adjustment comes as the analyst forecasts a decrease in the company's earnings per share (EPS) for the fiscal years 2024 and 2025, citing pressures on margins potentially caused by price reductions and rebates.
The revised estimates for the company's EPS are TWD3.47 for FY24 and TWD4.17 for FY25, which are approximately 13% and 17% below the consensus, respectively. The lower expectations are primarily due to anticipated reduced margins. Additionally, HSBC has introduced its forecast for FY26.
In justifying the new price target, HSBC has applied a price-to-book (PB) multiple of 1.6x, a reduction from the prior 1.9x. This multiple is in line with UMC's five-year average PB ratio. The rationale behind maintaining the Hold rating, despite the lower price target, relates to the potential benefits UMC could experience from geopolitical tensions.
Specifically, if the U.S. government were to impose restrictions on legacy nodes in China, UMC might stand to benefit due to its position in secondary foundry services.
The new stock price target implies a 3.9% downside from the stock's current trading level. This outlook takes into account the uncertain demand for secondary foundry services, which is a key area of operation for UMC.
Despite the potential for geopolitical issues to positively impact UMC, the current market conditions and expected margin pressures have led to a more cautious valuation of the company's stock by HSBC.
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