Is Seeking Value In The Semiconductor Space Still a Possibility ? Himax Technologies Analysis

Himax Technologies $HIMX is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Fabless means that the company does not have a factory to build their own chips but they outsource them to other suppliers. Himax is a worldwide market leader in display driver integrated circuits and timing controllers used in TVs, laptops, mobile phones, tablets, car navigation, virtual reality (VR) devices and many other consumer electronics devices. Himax is founded in 2001 and headquartered in Taiwan.

On January 14 2022, Himax introduced industry first 288 hz 8k TV TCON Solution. This is a timing controller chip which makes it possible to have a 8k 288hz display. So far there is no better display and timing controller on the market. Excellent news for the company and maybe a big revenue driver in the future since gamers demand better and better displays.

Himax introduced their first 8k display chip in 2018. But in last years the sales of the chip have been skyrocketing as gaming is gaining popularity. In 2021 Himax’s 8K TV TCON reached a record high with an annual growth rate exceeding 50%, an indication of the successful market penetration.

News Article 288Hz 8k display solution

If we look at their latest earnings presentation from Q3 we can find a lot more helpful information in understanding the company to its fullest.

In a brief summary, Himax is a leading imaging and human interfacing technology innovator. They have a diversified base of customers and revenues. This combined with operational and public market performances. Since IPO Himax did no fund raising so far and they are committed to high dividend payout ratios. They have innovative new products capturing growth markets, which we saw in the release of their newest display chip solution.

Investment Highlights

Investment Highlights

Himax Investor Relations

We can see in the picture below that Himax currently has 10% of the market share in display drivers. In automotive their market share is atleast 32% which is growing substantially. If you see declining market share in the other areas, don’t forget last two years the digital demand has been increasing very rapidly. So it’s only normal for them to lose some market share because they can’t keep up with the demand alone.

DDIC market share

DDIC market share

Himax Investor Relations

Himax has a pretty strong global reach and is located in Taiwan, China, US, Israel, South Korea and Tokyo. Himax has 3021 patents and 498 pending patents for worldwide approval.

Who are the customers of Himax? You would be surprised! Himax has customers like Samsung, Google, Microsoft, lenovo, Hp, Sony, Mercedes, Xiaomi, Huawei and many more. Based on the high number of customers they have a lower risk of losing a substantial amount of revenue when one company stops using their products.

Customers Himax

Customers Himax

Himax Investor Relations

Since IPO the company has returned 650 million dollar to shareholders, through dividends and share buybacks. Himax likes to do high dividend payout ratios on their strong confidence to execute on strategic growth initiatives and their strong financial position. For me personally, I would prefer them to do a lower payout ratio and do more share buybacks because they are currently trading at a relative cheap valuation. Maybe this will change in the near future.

History of dividends and buybacks for Himax

History of dividends and buybacks

Himax Investor Relations

In Q3, Himax grew their revenue by 15% quarter over quarter. Which is very solid. The gross margin are getting better so they are earning more money for each sale. It’s good to see the company getting more efficient over time. In these inflationary times with interest rates increasing, it’s even more important to invest in companies that are profitable. Himax complies with this.

Income statement for Himax

Income statement

Himax Investor Relations

The balance sheet on the other hand looks even more promising. At first sight it might look that Himax has only 230 million in cash, which is already pretty high for a 1.8 billion dollar company. But Himax has 400 million dollars in accounts receivable. Accounts receivable means Himax delivered products to a customer and they are still waiting for the payment. Ofcourse they also have some bills to pay, but these are relatively low. Himax has only 151 million dollars in short term borrowings and 226 million dollars in accounts payable(need to pay back suppliers). This brings us to a very healty ratio between current assests and current liabilities. So we do not really need to worry about the high dividend payout ratios, they got plenty of cash to pay out some premium dividends.

Balance sheet numbers for Himax

Balance Sheet

Himax Investor Relations

Last thing we need to ask ourselves before investing is if the company is currently fairly or undervalued. When you do your scouting on companies this will probably be the first thing you do.

Himax is currently trading at a price to earnings ratio (p/e) of only 5.52. Which is 80% lower than the average in the industry. The price to earnings to growth even stands at 0.00, lower than 1 indicates a company is undervalued. By these numbers alone you can see that you aren’t paying a lot for this semiconductor stock at the moment. Another one I like to look at is price to free cash flow. That one is also doing outstanding compared to the industry average.

Value metrics for Himax

Value

Seeking Alpha

When looking at the growth numbers of Himax you should avoid looking at CAPEX growth. It gets a D score, but since Himax is a fabless company they do not need to invest in upgrades of their factories. So you can turn a blind eye towards that. The other numbers are doing extremely well. The question is if they can persist these number going into 2022.

Growth for Himax

Growth Himax

Seeking Alpha

Conclusion:

Himax looks attractive compared to other industry peers. We seeked for value and Himax can definitely fit into this box in my opinion. The company is holding strong on their DDIC market share and is innovating forward. With the strong balance sheet I expect more dividends and share buybacks along the way. Given the fact that small caps may make a rebound this year, Himax might be an outperformer in 2022.

If you are looking for more stock analyse video’s definitely check out my YouTube channel. Thanks in advance!

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