On Wednesday, JPMorgan (NYSE:JPM) issued a downgrade for United Microelectronics Corp (2303:TT) (NYSE: UMC), changing its stock rating from Overweight to Neutral. The firm also adjusted the price target to NT$44.00, a decrease from the previous NT$62.00. The revision comes amid expectations of a delayed cyclical recovery in the semiconductor industry, which is anticipated to affect the company's utilization rates and gross margins.
JPMorgan's analysis suggests that United Microelectronics Corp may struggle to maintain its low- to mid-30% gross margins into 2026. This concern is driven by a combination of factors including increased pricing pressure, with industry leader TSMC reducing prices for certain mature process nodes, and a continued oversupply in the market. Additionally, UMC's depreciation expenses are on the rise.
The semiconductor company is expected to offer a 5-7% average selling price (ASP) discount to customers in the first quarter of 2025. This discount is seen as a response to the ongoing pricing pressures in the industry. Furthermore, with no immediate recovery in utilization rates forecasted for the next two quarters, earnings per share (EPS) consensus revisions for UMC could potentially trend downwards.
JPMorgan's report indicates that the stock price for United Microelectronics Corp could potentially fall to around NT$40 levels in the near term. This projection is based on a valuation of 10 times the forecasted FY25 earnings per share, reflecting concerns over foundry price pressures. The report also acknowledges that a potential upside risk to the stock could emerge from an increase in demand for edge-AI or stronger consumer demand in China, although current feedback from integrated circuit design vendors suggests a cautious approach to inventory buildup.
In other recent news, United Microelectronics Corporation (UMC) demonstrated steady growth in its Q2 2024 earnings, reporting a consolidated revenue of NT$56.8 billion, a 4% increase from the previous quarter, and a gross margin of 35.2%. The company's net income attributable to shareholders reached NT$13.8 billion, with earnings per share at NT$1.1120.
On the analyst front, BofA Securities downgraded the price target for UMC to NT$56.00 from NT$60.00, but maintained a Buy rating, despite a projected decrease in the gross profit margin profile. Goldman Sachs (NYSE:GS) also upgraded the company from Neutral to Buy, citing strong profitability and appealing valuation. In terms of regulatory compliance, UMC has demonstrated its commitment to transparency by filing a Form 6-K report with the U.S. Securities and Exchange Commission (SEC).
InvestingPro Insights
In light of JPMorgan's downgrade of United Microelectronics Corp (UMC), recent data from InvestingPro offers additional context for investors. Despite the challenges highlighted in the report, UMC maintains a significant dividend yield of 4.72%, which could be attractive to income-focused investors. This aligns with an InvestingPro Tip noting that UMC "pays a significant dividend to shareholders" and has "maintained dividend payments for 15 consecutive years."
The company's P/E ratio of 11.31 suggests that the stock may be undervalued relative to its earnings, which could be of interest given JPMorgan's revised outlook. Additionally, UMC's revenue for the last twelve months stands at $6.87 billion, with an operating income margin of 23.77%, indicating that the company still maintains profitability despite industry headwinds.
An InvestingPro Tip points out that UMC is "trading near its 52-week low," which correlates with JPMorgan's downgrade and price target reduction. This could present an opportunity for investors who believe in the company's long-term prospects, especially considering another InvestingPro Tip that highlights UMC's "strong return over the last five years."
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for UMC, providing a deeper understanding of the company's financial health and market position.
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