Is An Expensive Himax Technologies Still A Buy?

Mar.11.14 | About: Himax Technologies, (HIMX)


Himax’s revenue has been moving up consistently and this trend should continue in 2014.

LCOS microdisplay will drive revenue higher in the upcoming months.

Google Glass can provide a massive boost to Himax in the coming years.

Although Himax has appreciated nearly 400% since the start of 2013, it still has a lot of room to grow. Thus, I think it’s a good buy.

Over the past one year, Himax Technologies (NASDAQ:HIMX) shares have been on fire with gains of more than 200%. However, shares have become very expensive at 39 times earnings and growth has also slowed down. The company's recent fourth quarter results were also not that great, with year over year revenue growth of 2.4% not justifying the high earnings multiple. So, is Himax still a good investment? Let's find out.

Business trends

Himax is seeing strong fundamentals across all its business segments. The company's revenue in the fourth quarter exceeded guidance and was mainly driven by a better-than-expected performance from the smartphone and tablet market in China and Korea. Also, sales of non-driver products drove revenue higher.

Non-driver product sales reached another record high in terms of both absolute value and percentage of total revenue. Timing controllers, programmable Gamma OP, touch panel controllers, CMOS image sensors, power management ICs, LED drivers, and ASIC services were the main drivers behind the growth of the non-driver segment. Himax's pilot shipments of LCOS microdisplays for new and exciting head-mounted display applications also helped growth.

Himax has continued to expand its sale of large panel display drivers through Chinese customers and penetrating into non-China based customers. Its non-driver business also reported strong growth momentum. Himax also launched new products and landed major customer design wins in the previous quarter that should assist revenue growth going forward.

Also, despite intense competition in the driver IC space, especially in the lower-end segments, driven by phenomenal smartphone, tablet and automotive display growth, Himax's technology and cost competiveness helped it achieve decent gross margin improvement last year. In addition, strong growth in CMOS image sensor programmable Gamma OP, power management ICs, WLED drivers, video SoCs, and ASIC service should also help long-term growth.

A big catalyst

Himax is also gaining momentum in LCOS microdisplays as it is finding traction in wearable devices. As Seeking Alpha author Mark Gomes had reported last year, Himax is poised to benefit strongly from Google (NASDAQ:GOOG) Glass. According to Gomes, "Based on evidence gathered by me and my team at Pipeline Data, we strongly believe that Himax will be GOOG's primary provider of microdisplays, the key component that allows users to view computer-generated data on their glasses."

He goes on to say that, "Even if it takes 3 years to fully ramp, we believe 24 million units would represent $250-450 million of incremental revenue for HIMX over that time frame." So, Himax is probably sitting on a huge opportunity to grow its business going forward through the Google Glass.

On the technology front, Himax remains a market leader in providing state-of-the-art large panel driver IC solutions. For example, it is leading the market in the development of solutions to combat thermal issues that are common in 4K panels. It is believed that the main growth engine for large panel driver market this year will be 4K TVs, so Himax is focused on addressing the needs of this segment.

Also, Himax expects sales of its smartphone applications to accelerate throughout 2014, partially aided by the accelerating adoption of 4G LTE in various countries, including China. Also, the non-driver business is one of Himax's key differentiators against competitors, enabling it to offer total solutions of image processing and human interface-related technologies.

What next?


Himax's results

Trailing P/E (ttm, intraday)


Forward P/E (fye Dec 31, 2015)


PEG Ratio (5 yr expected)


Earnings growth CAGR (next five years)


Click to enlarge

Source: Yahoo! Finance

Himax's forward P/E is very low in comparison to the trailing P/E ratio, reflecting strong earnings growth projection. The PEG ratio (5-year expected) of 0.59 is quite impressive since it is way below 1, which is considered ideal. Also, its five-year earnings growth CAGR of almost 40% makes its currently expensive valuation look reasonable. So, investors should definitely consider holding on to Himax Technologies as it looks like a solid long-term bet.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.