The article was written by Harry Chiang, a Financial Analyst at I Know First.

Long Bullish View of Himax

Summary:

• High Potential for Future Earnings
• Large Player in an Increasingly Important Market
• Strong Leadership and Partnerships
• I Know First Algorithm maintains a bullish forecast on HIMX

Background:

Himax Technologies, Inc. (HIMX) is a fabless semiconductor company with headquarters in Taiwan. Founded in 2001, Himax currently controls 11% of the market for LCD screen display drivers. This makes it the third-largest player behind Samsung and Novatek. The founder Dr. Biing-Seng Wu holds 61 patents worldwide related to flat-panel LCD technologies. Under current CEO Jordan Wu, Himax is becoming a major leader in a worldwide market for display driver ICs and timing controllers used in TVs, laptops, monitors, virtual reality (VR) devices, and other consumer electronic devices.

Investors eagerly await further news as Himax transitions towards becoming a bigger supplier for companies such as Apple. We maintain a bullish forecast for Himax Technologies for the following reasons: high potential for future earnings, large player in a growing market, and strong leadership and direction.

(Source: Himax, http://www.himax.com.tw/ accessed at 4:39pm 06/04/17).

High Potential for Future Earnings:

Himax has recently had a dip in its finances. It was able to grow its revenues 14.3% on a year-over-year basis in the fourth quarter of 2016. However, net revenue for the first quarter of 2017 decreased 23.7% to $155.2 million from Q4 2016. Q1 2017 GAAP net income was $1.4 million, compared to $4.4 million in the fourth quarter of 2016. Himax was at 2.6 cents per diluted ADS in Q4 2016. This decreased to 0.8 cents per diluted ADS in Q1 2017.

However, the company remains positive on its long-term business outlook. It attributes current finances to higher capital expenditure in preparation for company expansion. Himax shares have still gained approximately 25.5% year-to-date. It remains a debt free company with $199.5M in cash at the end of the quarter. This is up from $168M a year ago. This places Himax in a strong position for growth once it absorbs the capital expenditures for this year.

Large Player in an Increasingly Important Market:

Himax is one of the largest competitors in the LCD screen display driver market. It still plans to expand its capability for liquid-crystal-on-silicon (LCOS) products and wafer level optics sensors (WLO). CEO Jordan Wu has stated that WLO are “one of the most significant new applications for the next generation smartphone”. This increased development capability caused the higher capital expenditure of this year. However, the WLO and LCOS product lines are significant enough that investors remain confident in Himax. This is because Himax is one of the leading competitors in the AR market with their LCOS line. This is a sector which tech M&A advisory firm Digi-Capital believes will grow from under $1 billion today to $90 billion by 2020. Research firm IDC believes AR headset sales will surge from $209 million to $48.7 billion by 2021.

If these predictions are true, then Himax is poised to be the lead supplier for these AR components. Thus, the company will have a massive role in this growing market. Furthermore, this applies to their WLO line as well. Himax received an anonymous large order for WLO sensors in 2017. There are reports these will be used by Apple for the production of a 3D-sensing camera for the iPhone 8. This is a potential big step for Himax and means much opportunity for future growth in a developing market.

Strong Leadership and Partnerships

The potential for the previously discussed market is immense, but it requires the right leadership and approach. Although Q1 2017 results discouraged investors, Jordan Wu’s maintained a positive outlook on the potential of the future market. This led to a continued upward trend in terms of investment. The company’s management has done a good job handling sales in the face of plenty of obstacles. Himax’s inventories as of March 31st 2017 were $148.3 million, down from $182.8 million a year ago and down from $149.7 million a quarter ago. Furthermore, accounts receivable at the end of March were $167.7 million as compared to $191.0 million last quarter and $173.0 million a year ago.

Himax has generally followed its predictions in its investment guidance reports. This current capital expenditure will likely not pose a threat to financial expansion under the strong current management. Himax also has strong external connections, as demonstrated by its work with Google in 2013. Google remains a potential large customer once it has revamped its AR/VR products. Himax may also be producing the 3D-sensing cameras for the iPhone 8. If so, it will also have strong ties with Apple for future ventures.

Conclusion:

Although the revenues are down from the Q4 2016, we are maintaining a bullish forecast of the stock. With high potential for future earnings, increasingly strong position in a growing market, strong leadership and partnerships, and I Know First’s algorithm forecast, Himax is considered a long term investment.

I Know First Bullish Forecast

Below is the latest forecast I Know First algorithm released as of today on June 4th, 2017.  Both today’s and the forecast back in August 18, 2015 rate Himax as a buy.  The prediction strength is even higher in our most recent forecast.  The previous forecast last August accurately predicted the 49% stock increase. The higher prediction strength registered in the latest forecast below could indicate a greater increase in return than previous.

Although the predictability has decreased since 2015, this is likely due to the increased capital expenditure previously discussed. The predictability is increasing long term, and Himax remains a strong contender for massive potential growth. Himax is preparing to gain a more important role in AR/VR and consumer electronics.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number in the middle of the box.  It is also the predicted direction (not a specific number or target price) for that asset. The predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecast strength of the prediction, while the predictability represents the level of confidence. 

Past I Know First Forecast Successes with HIMX:

In such as the one dated on August 18, 2015, the algorithm accurately forecast a signal for Himax.  In a one year time span, the stock rose impressively by 49.52%, beating the S&P 500 negative return of 1.08%. As aforementioned, Himax stock dipped slightly in 2017. However, this is likely due to the capital expenditure increase as Himax prepares for future growth.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.