Himax: Long-Term Perspectives Don't Look Promising
Summary
- Himax has underperformed in 2017 and its shares are already down 20% YTD.
- For the Q1, Himax expects to have its revenue down 9% to 14% sequentially and forecasts its GAAP earnings per share to be -2 to -3 cents per diluted share.
- Our analysis shows that Himax’s shares represent a downside of more than 50% from its current market price.
Last year, we wrote two articles that described our doubts regarding Himax’s (NASDAQ:NASDAQ:HIMX) ability to deliver growth, as the company wasn’t making a lot of progress in the last few quarters and its results in Q1 and Q2 of the fiscal year 2017 were signaling that the business might not outperform its previous results. In Q3, Himax has beaten its only analysts’ revenue estimates for the year, but was still down Y/Y. Nevertheless, even with such bad results its stock managed to have a good performance, as the shares were trading around 52-week highs in late November, mainly thanks to the announcement that Himax is working with Qualcomm (NASDAQ:QCOM) on its new 3D sensing technology and thanks to the news that the company has successfully started to deliver wafer-level optics technology to Apple (NASDAQ:AAPL) for its latest iPhone X. However, in December the momentum started to fade, as Himax’s shares once again tumbled to its near 52-week lows and are down more than 20% YTD.
For the Q1 of FY18, Himax expects to have its revenue down 9% to 14% sequentially and forecasts its GAAP earnings per share to be -2 to -3 cents per diluted share. In addition, the company continues to spend vast sums of money on its new WLO building project, as the phase II of its CAPEX plan is about to be announced soon. However, with such a weak financials, we expect the company to struggle to finance all of its upcoming developments with its own resources and believe that it will need to make an additional capital raise from the financial institutions in the future.
Below is a discounted cash model, which we created ourselves and which shows our forecast of the company’s financials for the upcoming years. Since in FY17, Himax fell short on its revenue, there is a big chance that it will outperform FY17 results in FY18, as the joint project with Qualcomm is expected to bring monetary results already in the first half of the current year. As for the other metrics, they are expected to be volatile from time to time, as the company has a history of failing to expand its market share in the industries in which it competes.
Source: Capital IQ, Own estimates
When we combined all of the data from the forecast and calculated the company’s discounted terminal value, we were able to calculate Himax’s intrinsic value, which in our model is worth $4.33 per share, or a discount of more than 40% from its current market price. The detailed calculations could be seen below:
Source: Own estimates
As for the comparable analysis, we looked at the other companies, most of whom are from the APAC region, and are selling their products on the same market in which Himax participates. Based on the peer to peer results that we have received from the table below, we came to a conclusion that Himax is overpriced by around 65% to 70% from the current price.
Source: Capital IQ, Own estimates
In order to find out the final fair value of Himax, we combined our DCF model along with the comparable analysis results and came to a conclusion that Himax’s shares are worth $3.89 per share, which represents a discount of more than 50% from the current market price.
Source: Own estimates
The main achievement of Himax in 2017, in our opinion, was the signing of the deal with Qualcomm to mass produce their joint 3D sensing technology. Besides that, we don’t see any other catalysts that could drive reasonable growth in 2018, and thereby we believe that the company’s stock is overpriced at the moment. However, it still could hold a momentum in the upcoming months, as it did last year, and for that reason we decided not to hold any stock in the company and wait for more upside to short sell it. All the shares that we were holding last year were closed at a profit, as we were increasing our short position at the beginning of December and started to close it in the last few weeks. As for now, we wait for more opportunities to come and hold no position in Himax at the moment.
This article was written by
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