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Invest in This Chipmaker to Benefit From Wearable Devices

August 29, 2014 | About:
rsconsultant

rsconsultant

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The supplier of semiconductor products Himax Technologies (HIMX) has produced yet another quarter of good numbers on the back of strong performance of its non-driver business that rose approximately 21.3% from the year ago quarter and up about 9.0% sequentially. However, the company witnessed a dip of nearly 3.5% in its small and medium-sized drivers, basically driver ICs that once accounted over half of total revenue due to inventory adjustment from one of its critical Korean end customers.

Impressive growth

Taiwan-based Himax Technologies for the second quarter reported revenue of $196.4 million that beat the consensus estimate of $195.3 million in revenue. Also its net income for the quarter came in line with the consensus to $24.1 million or earnings of $0.14 per share as against $19.4 million or earnings of $0.12 per share last year in the same quarter.

Moreover, Himax demonstrated a pretty healthy outlook for the third quarter of 2014 as it expects its revenue to increase approximately 10% to 15%, which is well ahead of consensus expectation of 7% increase in revenue. With respect to this healthy outlook, one of the analysts, Chardan at Capital Market, reiterated that Himax is expecting an encouraging correction in the orders from Samsung Electronics (SSNGY) that will certainly drive growth for its revenue in the current quarter. As a result the stock was seen rising almost 5.65% aftermath. In addition, the analysts have estimated CAGR of 23.85%, which is higher than average industry CAGR of 15.22% for the next five years, highlights tremendous growth prospects for the stock going forward. So, investors can choose buying more of the shares that looks solid to propagate in future.

Good strategies

On the top of it, Himax has also entered into a potential partnership with Lumus that manufactures augmented reality glasses. Himax and Lumus will soon be involved in fabricating the next-generation of smart glasses, establishing advanced technology criteria in image superiority and portrayal. This world-class technology is expected to produce amplified reality glasses that look quite strong to get converted into a must-have consumer device in the future, should brighten its outlook in the coming years. Besides, both the companies look determined manufacturing wearable display mainstream consumer products; exploiting their manufacturing capabilities and leveraging their innovative solutions will complement its growth going forward.

Additionally, the supplier of semiconductor products is expecting resilient growth in its product divisions this quarter such as large panel driver ICs, small and medium driver ICs, and in its non-driver professional as the demand for these products is rising in the key Korean end customers like Innolux and its recently acquired new customers from the Taiwanese. Besides, Himax is seeing a stretched capacity from its Chinese TV panel customers on a regular basis for its 4K TV displays and a strong ramp up of its production for its large panel customers should add value to its growth.

So, Himax particularly expects its drivers ICs for TV as a core growth product in the second half of the year with the increased shipment for the large panel ICs for 4K TV. Himax also expects strong growth to continue in the both the remaining quarters and for the first quarter of 2015 for its large penal ICs 4K TV that should further establish a long-run growth trend for next couple of years for its large panel ICs solutions. Meanwhile, the company has also admitted that it will witness fairly improved sales for its large panel drivers ICs in the on-going quarter, since the fourth-quarter 2012.

With the growing popularity of the ground-breaking devices such as smartphones, tablets and for automotive applications, Himax sees tremendous opportunity for its medium and small-sized ICs drivers. Himax expects Chinese smart phones markets to complement this growth for its medium and small-sized ICs drivers this quarter as the government has boosted infrastructure investment in the region. Also, the company has recently brought in the market a new generation of driver ICs for HD720 resolution. Himax is extremely pleased with the initial performance of the driver in the high-end smart phone in China and in other regions as well. In addition, the accelerated demand from the Korean-end customers should generate greater sales for its medium and small-sized panel for the company this quarter.

However, Himax sees sequential declining demand in the drivers for the tablets due to the better reputation of China’s white-box market. But it anticipates the rising demand in the smartphone division to offset this declining demand in driver ICs for tablets. Further it is witnessing a steady growth in the automotive driver ICs in this quarter. Himax forecasts a high-single-digit growth in its medium and small-sized ICs driver as compared to the previous quarter. Himax also expects this division to perform exceedingly well in the fourth quarter of 2014.

Apart from these, the supplier of semiconductor products also sees potential growth for its non-driver business division, particularly for its world-class CMOS image sensor and smartphone driver ICs to yield higher sales this quarter despite tough pricing environment. Himax has launched 13 megapixel sensors during the reported quarter and expects this offering to well position the company in the small group of players. Besides, the company is also accelerating shipment for the 8 megapixel sensors this quarter that should drive its growth in the high-end smart phone market that should drive its margins for the second half of the year.

Ending remarks

Himax is currently trading at the forward P/E multiple of 14.92 against trailing P/E multiple of 21.09 that indicate reasonable valuation for the stock that has huge potential to grow in the future. Also, its PEG ratio of 0.71 for the next five years complements its prospects of growth in the coming years. Himax is doing fairly well on the performance as well as on the wealth matrixes as its profit and operating profit yields are 8.72% and 9.05% respectively for the trailing twelve months, while its ROE yields stands at 14.81%. Himax has total cash of 172.93 million and operating cash flow of 56.57 million quite sufficient to cover its total outstanding debt of 105.50 million, which is well mixed by most measures.


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