($HIMX) Himax Technologies: an Undervalued Semiconductor Company

Overview Himax Technologies, Inc., is a little-known Taiwanese fabless semiconductor company that provides display imaging processing technologies around the world. The company operates through two segments, Driver IC and Non-Driver Products. It offers display driver integrated circuits (ICs) and timing controllers that are used in televisions, laptops, monitors, mobile phones, tablets, automotive, digital cameras, car navigation, virtual reality devices, and other consumer electronic devices. The technologies are used by well-known companies like Samsung, Google, LG, Lenovo, and many more. The tailwinds in the semiconductor industry have led to a margin expansion from around 20-22% to over 40% in Q22021 and 40.2% in Q32021. The positive trends are here to stay for at least 6-8 more quarters with a strong demand for tablets, computers, displays, smartphones, and a recovery in the automotive sector. Himax is well-positioned for a longer period of higher earnings and accelerated growth by being a market leader in many technological areas which profit from a boosted demand. Growth Areas TDDI (Touch and Display Driver Integration) Himax's biggest growth driver is the TDDI segment as the company is one of the leaders in the market while TDDI is steadily replacing DDCI. The global demand is expected to increase by 33% to 1.13 bn. units by 2025, according to Omdia. ​ https://preview.redd.it/lgo41r1h73c81.png?width=640&format=png&auto=webp&s=52073ed967d082fb419514c807b714b01120d90e DDIC (Display Driver IC) Himax is a market leader of large DDCI in China and expects revenue to increase in this segment by low teens. For the small and medium-sized driver IC business, the company expects a high-single-digit increase caused by a capacity shortage because demand still surpasses supply. The preliminary Q3 2021 results indicate that Himax's revenue forecast was in-line with actual results and that shareholders can be very optimistic for the rest of the year. WLO and 3D Sensing Wafer-Level Optics (WLO) and Time-of-Flight (ToF) 3D sensing are important technologies to achieve optical high efficiency, and not many companies offer solutions to the industry. Main cameras in smartphones and 3D sensing for facial recognition algorithms are "growth opportunities for Himax beyond 2022." Furthermore, Himax sees strong demand for its CMOS Image sensors, needed in web cameras and notebooks. All in all, revenues of the non-driver IC business are expected to increase by 11-14% in the first quarter 2022. Financials Himax has 174.09million shares outstanding (as of 1/16/2022) and the market cap is $2.25 bn. with a stock price of $12.9. Book value per share is $4.17 which means that Himax trades significantly above book value but a vast improvement from a year ago when book value was 2.19. The company also has a strong balance sheet with an equity ratio= 55% As of September 30, 2021, Himax Technologies reported $229 million in cash and a total assets/liabilities ratio of 2x which is not a cause to worry. The Company also reports short-term secured borrowings and long-term unsecured borrowings worth $205 million. If we assume 2023 EBITDA of $473 million, the total amount of debt does not appear significant Valuation Himax Technologies is still a bargain right now according to my price multiple models, which compares the company's price-to-earnings ratio to the industry average. Competitors include Sony, Omnivision, Synaptics, FocalTech Systems, Novatek Microelectronics, Orbbec, and Raytron Technology. They all report an EBITDA margin of 20%-43% and EV/EBITDA of 6x-34x: In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Himax Technologies’s ratio of 4.53x is below its peer average of 29.18x, which indicates the stock is trading at a lower price compared to the Semiconductor industry. Conclusion Himax presents an interesting opportunity in 2022 as they are positioned in the right sector to experience dramatic growth. For Himax, demand surpasses supply which leads to higher prices and margin expansion. The tailwinds for Himax are here to stay for the next couple of quarters and will boost its earnings and revenues in the long term. The stock is still undervalued according to fundamentals and if the management seizes the opportunities, Himax will be a big winner and highflyer in 2022.

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($HIMX) Himax Technologies: an Undervalued Semiconductor Company

bullish

Overview

Himax Technologies, Inc., is a little-known Taiwanese fabless semiconductor company that provides display imaging processing technologies around the world. The company operates through two segments, Driver IC and Non-Driver Products. It offers display driver integrated circuits (ICs) and timing controllers that are used in televisions, laptops, monitors, mobile phones, tablets, automotive, digital cameras, car navigation, virtual reality devices, and other consumer electronic devices. The technologies are used by well-known companies like Samsung, Google, LG, Lenovo, and many more. The tailwinds in the semiconductor industry have led to a margin expansion from around 20-22% to over 40% in Q22021 and 40.2% in Q32021. The positive trends are here to stay for at least 6-8 more quarters with a strong demand for tablets, computers, displays, smartphones, and a recovery in the automotive sector.

Himax is well-positioned for a longer period of higher earnings and accelerated growth by being a market leader in many technological areas which profit from a boosted demand.

Growth Areas

TDDI (Touch and Display Driver Integration)

Himax's biggest growth driver is the TDDI segment as the company is one of the leaders in the market while TDDI is steadily replacing DDCI. The global demand is expected to increase by 33% to 1.13 bn. units by 2025, according to Omdia.



DDIC (Display Driver IC)

Himax is a market leader of large DDCI in China and expects revenue to increase in this segment by low teens.

For the small and medium-sized driver IC business, the company expects a high-single-digit increase caused by a capacity shortage because demand still surpasses supply.

The preliminary Q3 2021 results indicate that Himax's revenue forecast was in-line with actual results and that shareholders can be very optimistic for the rest of the year.

WLO and 3D Sensing

Wafer-Level Optics (WLO) and Time-of-Flight (ToF) 3D sensing are important technologies to achieve optical high efficiency, and not many companies offer solutions to the industry. Main cameras in smartphones and 3D sensing for facial recognition algorithms are "growth opportunities for Himax beyond 2022."

Furthermore, Himax sees strong demand for its CMOS Image sensors, needed in web cameras and notebooks. All in all, revenues of the non-driver IC business are expected to increase by 11-14% in the first quarter 2022.

Financials

Himax has 174.09million shares outstanding (as of 1/16/2022) and the market cap is $2.25 bn. with a stock price of $12.9. Book value per share is $4.17 which means that Himax trades significantly above book value but a vast improvement from a year ago when book value was 2.19. The company also has a strong balance sheet with an equity ratio= 55%

As of September 30, 2021, Himax Technologies reported $229 million in cash and a total assets/liabilities ratio of 2x which is not a cause to worry. The Company also reports short-term secured borrowings and long-term unsecured borrowings worth $205 million. If we assume 2023 EBITDA of $473 million, the total amount of debt does not appear significant

Valuation

Himax Technologies is still a bargain right now according to my price multiple models, which compares the company's price-to-earnings ratio to the industry average. Competitors include Sony, Omnivision, Synaptics, FocalTech Systems, Novatek Microelectronics, Orbbec, and Raytron Technology. They all report an EBITDA margin of 20%-43% and EV/EBITDA of 6x-34x: In this instance, I've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. I find that Himax Technologies's ratio of 4.53x is below its peer average of 29.18x, which indicates the stock is trading at a lower price compared to the Semiconductor industry.

Conclusion

Himax presents an interesting opportunity in 2022 as they are positioned in the right sector to experience dramatic growth. For Himax, demand surpasses supply which leads to higher prices and margin expansion. The tailwinds for Himax are here to stay for the next couple of quarters and will boost its earnings and revenues in the long term. The stock is still undervalued according to fundamentals and if the management seizes the opportunities, Himax will be a big winner and highflyer in 2022.

read-time
3 min
14.50
Target Price
8/ 10
Confidence
6-12 Months
Timeframe
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