Stock Down 17% On Earnings Beat | Himax Technologies Analysis

Hi everyone,

I’m back with another report, enjoy!

Himax reported fourth quarter results today. At the market opening the stock directly fell down 17%. Don’t make the mistake to sell something because it is down. Go check what’s changed, reassess and make your decision. When we go over the earnings you will see that this drop is ridiculous. Unfortunately I had no money ready so could only buy 1 additional share. Good reminder to always have cash ready. By now the stock is already climbing up. Institution are probably buying up the sold shares of scared retail investors.

Q4 Overview

The revenues are at the upper end of guidance, gross margins and earnings per share both beat guidance. All three also reached all-time highs. This was the best quarter ever for Himax. Overall they exceeded guidance that they gave last quarter. At first sight this looks really good. One case I can make for the drop in share price is the weaker guidance for Q1 2022. Himax expects the revenue to decrease 5% to 9% and expects gross margins to be between 46% to 48%, which is lower than this quarter.

But I got good news for you, this was the worst news. Himax expects the automotive sector to be No. 1 sale contributor starting in 2022. They target to double automotive sales again in 2022. They already doubled their sales in 2021. The stock drops after hearing this? Very questionable.

We are not finished yet. Since more big tech companies want to go into the metaverse, Himax is preparing for this. They are building key optical technologies to enable the metaverse. Remember Himax has big costumers like Google, Microsoft and Amazon.

CEO Outlook

Even the first words of the CEO are positive going into next year. He says: “We are upbeat about our year ahead growth prospect, backed by a few product areas, notably the automotive and ultralow power AI image sensing businesses, which we feel confident will stay strong regardless of the macroeconomic concerns. We anticipate these two products, both with good gross margin, will outgrow other product lines in 2022.

As the contribution of automotive revenue grows, it will better position our product mix in terms of both profit margin and business visibility.

Then he goes on: “Looking ahead into 2022, backed by more secured foundry capacity than last year and an advanced product portfolio, we are well positioned to continue to grow our top line and will continue to work towards maintaining a high gross margin, one of our major long term business goals. Wherein, we anticipate further revenue and profit growth in 2022

Overall what do we got: Less supply chain issues, higher gross margins, additional growth segments and strong confidence for 2022. All this makes the stock fall 17%. If you say this to someone, who would believe you? The stock is currently trading at p/e of 3.5 to 4 when you got more profitability growth ahead.

2021 Highlights

2021 has been a big growth year for Himax with growth of more than 74% compared to 2020. Small and medium sized display drivers posted the highest growth of 86% year over year. The company saw extraordinary business momentum particularly in the tablet and automotive areas. With sales up more than 110% for automotive.

Balance Sheet

After Q4, Himax has now 364 million dollars in cash. They got additional cash from customers for the purpose of securing their long -term chip supply, but on the other hand Himax also made payments to secure its long term foundry capacity. The cash pile is growing and will make Himax’s balance sheet stronger and stronger.

Also interesting is that Himax is stacking inventories amidst tight foundry capacity where demand still far outpace supply. So they will keep pursue an aggressive inventory buildup strategy. Because of this they can deliver enough chips to their customers.

Q1 Guidance

While pricing has stabilized recently on both the foundry and customer sides, the company guided for a modest sequential decline in gross margin for the first quarter due to a couple of factors. First, company’s cost of goods sold this quarter represents pricing from the previous quarter when foundries were still raising their prices. Second, in the fourth quarter the company benefitted from expedited orders from customers who paid a premium and it has since seen a decrease in such orders during Q1. So costumers that wanted their products sooner, paid a premium and Himax made more money. Q4 has also the most sales because it’s holiday season and people spend more money so a decrease in Q1 is not abnormal at all.

Himax goes on in saying that the guidance is still better than their normal off season sales. In Taiwan, there is Lunar New Year season in Q1 so there are also fewer working days.

guidance explained

Metaverse

Last thing I want to take a quick look at is the metaverse. Himax says that it is still years away from mass production, but they want to be at the forefront of these key technologies. And they plan to do this with tech industry’s leading players. So all by all very interesting and important to follow up. This can be another growth segment for Himax in the following years.

Want to have a more detailed summary with my reasoning and holdings? Check out the video: Stock Down 17% On Earnings Beat | Himax Technologies Analysis - YouTube

My channel: https://www.youtube.com/channel/UC74ascgDjOZzQXXCZGisQtw

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