Equity Valuation: Himax Technologies, Inc.

Himax Technologies, Inc. is a fabless semiconductor company headquartered in Tainan City, Taiwan, with a focus on designing and selling hardware devices and semiconductor chips. Established in 2001, it operates through subsidiaries such as Himax Technologies Limited, Himax Display, Inc., Himax Imaging, Inc., and Himax Analogic, Inc., employing around 2100 employees globally. Its business segments include Driver IC (Integrated Circuit) and Non-driver Products, serving markets across Asia, Europe, and the Americas. The company offers critical components for small, medium, and large-sized applications. Its product lines range from display drivers and timing controllers to touch controller ICs, CMOS image sensor products, and 3D sensing technology.

With a global presence, Himax strategically operates in Asia, especially in China, Japan, South Korea, and Taiwan, leveraging the region's dominance in the display panel market. It also targets growing markets in Europe and the Americas, particularly in automotive display products and timing controllers.

Led by Dr. Biing-Seng Wu and Jordan Wu, the management team boasts extensive experience in semiconductor technology, investment banking, and executive positions. The board of directors includes individuals with backgrounds in management, academia, and finance, ensuring a mixed skill set.

Despite challenges such as slowing demand and regulatory dynamics, investors remain optimistic about the prospects of the semiconductor industry, with global sales expected to reach $1 trillion by 2030. Himax Technologies, with an average market share of 0.204% over the period 2020-2023, faces competition from major players like Intel, Samsung Electronics, and Qualcomm, amidst geopolitical tensions and evolving regulatory landscapes.

Himax encountered revenue declines in 2022 and 2023, attributed to challenges in the automotive business. Despite maintaining positive gross profit numbers, there was a significant decrease in gross profit margins due to the drop in sales. Profitability metrics reflect such fluctuations, influenced by rising expenses and declining revenues.

Over 2021 and 2022, the company had implemented a less capital-intensive strategy, as a probable attempt to improve its cash flow position by decreasing its capital expenditures. In 2023, this trend was reversed, with CAPEX rising again and even exceeding the amount of D&A, highlighting a strategy of expansion.

Himax Technologies has a positive liquidity position, given a greater amount of cash & cash equivalents and short-term investments compared to its gross financial obligations. Despite this being a great indicator of financial and liquidity stability, we believe that Himax might not be exploiting leverage at its fullest and the company is sitting on a significant amount of cash that is not being invested back into its operations, thus losing the possibility of increasing its profitability.

From a broader perspective that takes into account the results from the DCF sensitivity analyses and the market multiples method, the target share price for the company is $11.76, with a lower bound of $10.80 and an upper bound of $12.71. Himax Technologies is currently trading (as of 2024.04.26) at $5.04. According to our valuation, the business is significantly undervalued by the market, which may not be adequately taking into account Himax's future growth and the potential of the semiconductor industry. Therefore, we recommend the company’s stock a strong buy.

Read the full report in the link below!

Himax Technologies, Corporate Valuation.pdf

Download PDF • 7.77MB