Himax Technologies, Inc. (ADR) (HIMX) Stokes Bear’s Pessimism Following 4Q Print

What 3D sensing "total solution" opportunity? Oppenheimer's Andrew Uerkwitz is not taking the gamble on HIMX shares.


Oppenheimer analyst Andrew Uerkwitz has been a bear for a year and a half now on Himax Technologies, Inc. (ADR) (NASDAQ:HIMX), and yesterday’s fourth quarter earnings release certainly has not changed the analyst’s negative mindset on the stock.

This bearish case hinges upon two key factors for Uerkwitz, who breaks down his pessimism on the tech player’s opportunity at hand: “1) core business (DDIC) being eroded with technology change and competition; 2) the Street and company overstating the 3D sensing ‘total solution’ opportunity. With no ‘total solution’ revenue yet, we saw a 4Q17 with DDIC revenues down 17% Y/Y, a 1Q18 DDIC guidance up (down ex-automotive) +4% over a weak 1Q17, and gross margin pressure (1Q18 down 200+bps Q/Q). While we think core weakness should not be overlooked, we do believe investors care more about 3D sensing. This is where it gets interesting: it appears capex is delayed and expected year-end capacity (5-6M units/ month) lowered. This led us reiterate Underperform rating and the belief that ‘total solution’ revenues will make minimum contribution.”

For the fourth quarter, Uerkwitz acknowledges that revenues and EPS generally met consensus expectations. However, the analyst is not blind to the fact that “4Q results included a one-time asset sale, without which EPS would have been zero.” Meanwhile, from where the analyst is standing, the first quarter 2018 revenue guide is a miss, guided 14% to 9% under quarter-over-quarter. The revenue outlook’s midpoint of $160.2 million underperforms the Street’s $182.2 million forecast, although is not so far off from the analyst’s $164 million projection. However, the EPS guide likewise comes up short of the Street’s expectations.

In reaction, the analyst is cutting his 2018 forecasts and setting a 2019 EPS target of $0.13.

Yet, Uerkwitz highlights a positive in large panel DDIC as a growth driver once more, noting that even though this segment dipped 14% year-over-year for the quarter, the guide looks more encouraging for the first quarter of 2018. Uerkwitz anticipates the segment can increase 12% this year on back of display area growth coupled with share gains by Chinese panel makers, likewise acknowledging strength in Auto, soaring 26% year-over-year. By the first quarter of 2018, Auto should outperform mobile, wagers the analyst.

Yet, 3D sensing keeps Uerkwitz a skeptic, even as the HIMX management team has maintained conviction to ship “total solution” in 2018. Capital expenses have barely been invested to date on “total solution,” the analyst points out, although the HIMX team looks for shipment to kick off as early as the first half of this year.

To put it simply, “We continue to be negative and did not hear anything on the call to change our minds: underwhelming capex, lowered capacity expectation,” concludes Uerkwitz, criticizing: “We came away with more questions than answers.”

Therefore, on the heels of the quarterly show, the analyst reiterates an Underperform rating on HIMX stock with a $4 price target, which implies a 51% downside from current levels. (To watch Uerkwitz’s track record, click here)

TipRanks points to far more optimism on the Street than Uerkwitz’s minority bearish camp when it comes to HIMX’s prospects. Based on 8 analysts polled in the last 3 months, a majority of 5 analysts are bullish on the stock, 1 is hedging his bets on the sidelines, while 2 are bearish on HIMX. Notably, the 12-month average price target of $11.43 suggests a healthy return potential of 39% from where the stock is currently trading.HIMX stock