Advances In Automotive Displays And AI Will Create New Market Opportunities

Key Takeaways

• Strategic advancements in automotive displays and OLED adoption could drive significant revenue growth through innovative technology and design wins.
  
• Collaboration on high-speed optical communication and low-power AI applications presents promising new revenue streams and market opportunities.
  
• Challenging macro environment and increased competition may suppress demand and impact revenue, with uncertainties affecting future growth projections and earnings stability.

Catalysts

A fabless semiconductor company, provides display imaging processing technologies in China, Taiwan, the Philippines, Korea, Japan, Europe, and the United States.

• Himax is optimistic about growth in its automotive display market, driven by innovation, technological advancement, and new technology adoption such as LCD TDDI, OLED, and Tcon. This is expected to drive revenue growth.
  
• The company is making significant progress in its collaboration with FOCI on high-speed optical communication technology, which could open new revenue streams and significantly contribute towards future revenue and profitability.
  
• There's a strategic shift towards OLED displays in notebooks and tablets, with expected mass production and launches in 2025, which Himax is positioned to capitalize on, thereby potentially increasing revenue through new product offerings.
  
• Himax's WiseEye technology for low-power AI applications shows promise for various uses such as smart locks and access control, potentially boosting sales as adoption in endpoint AI applications grows.
  
• Their strong market position and secured design wins in automotive Tcon offer a growth trajectory, projected for substantial increases, which could positively influence future revenue and earnings.

Himax Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Himax Technologies's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 14.4% in 3 years time.
• Analysts expect earnings to reach $153.2 million (and earnings per share of $0.73) by about December 2027, up from $78.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2027 earnings, up from 14.9x today. This future PE is lower than the current PE for the US Semiconductor industry at 32.1x.
• Analysts expect the number of shares outstanding to grow by 6.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.61%, as per the Simply Wall St company report.

Himax Technologies Future Earnings Per Share Growth

Risks

• The macro environment remains challenging, with panel customers reducing production and end brands taking a cautious approach, which could suppress IC demand and impact revenue.
  
• The company faces increased competition from local Chinese companies in the large display driver IC market, which could affect market share and revenue.
  
• Automotive market demand shows significant fluctuations, influenced by unpredictable government policies and aggressive discount campaigns, potentially impacting earnings stability.
  
• Current financial information is unaudited and may vary materially from audited financials, which creates risk regarding the accuracy of reported earnings.
  
• The conservative outlook for Q1 2025 and lack of good visibility due to macroeconomic uncertainties could impact future revenue growth projections.

Valuation

• The analysts have a consensus price target of $8.2 for Himax Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.6, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.1 billion, earnings will come to $153.2 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 10.6%.
• Given the current share price of $6.7, the analyst's price target of $8.2 is 18.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.