2M monthly lcos rate run is max current capacity without expansion. They just bought land for expansion if needed so you have to believe they have enough interest in the tech that they expect demand to exceed current max capacity. 2M chips x 12 = 24m x $25 average selling price = $600,000,000 x 10% (company net is 8%, lcos is able to ramp w/o much in the way of addt'l extra costs, i think they could easily net 15%) = 60m / 170m shares = .35 addt'l eps + .35 easily from rest of business = .70 easily for CY14.
Variables are lcos customer ramp rate and volume, plus lcos net margins. Rest of business should rebound some as already predicted. So the bottom line is, earnings should double in CY14, but may be able to increase 2.5-3x depending on lcos net margin. 20pe minimum imo, x .70 = $14 fair value.
One other variable is chip cost. Saw a report once using a $25 avg. Also, not included in any of these calcs is WLO production beginning in 2q14...Unknown if that will be replacement business for lower end tech or organic growth. Nonetheless, margins will be better assuming the trend J-Wu mentioned of newer/higher tech equalling better margins for them.
A 20fpe should be the bare minimum. History in the industry with companies developing breakthrough tech suggests the p/e should more align with growth rates, which are obviously going to exceed 20. Could easily see a 30fpe, and even then that isn't going to match eps growth rate so at 8.75, its a no brainer.
My comments would be:
- Market is forward looking but there are too many unknowns for all the potential to be fully priced into the share price today
- Largest unknown is timing......when are products released? I think this will come sooner from Sony/Microsoft/Oculus gaming goggles due to more competitive gaming market while Google Glasses are not being competitively pushed for now
- Second largest unknown is demand and this includes sales........which would be greatly impacted if Glasses eventually offered a model with two displays rather than one (option to allow 'stereoscopic' viewing and even 3D when not moving)
- Third largest unknown is extend of LCoS market as whether these will be used for switches and camera arrays (appropriately modified) although we know automotive use will be included
- Share price still very volatile and seems slightly 'manipulated' by traders/MM's so that scares away some
But, fast forward 6 months and things really clear up on several fronts.......especially timing and a bit on demand. Some products (camera arrays, switches) will take longer.
Fast forward another 3 months and we get our 2014 dividend........which is nice but it will also tell us something about HIMX needs for cash for investment in expansion, etc. July 2014 is also the end of the 12 month period where Google has to commit to purchasing the remaining 8.5% of Himax displays.
As per your math, I would:
- Use 2/3rds of this for 2014 as they will not start in Jan 2014 at 2 MM/month. But, that works well after that until they expand.
- I would also increase the net margin beyond 8% at the 2 MM/month manufacturing level as margins should expand beyond 10%.
- I think base business does at least $0.40 in 2014 if you recall their base business optimism in the recent 3Q 2014 report
In summary, good work and there is no reason my 'crystal ball' is any better than yours......but these are my thoughts.
You seem to be one of the more intelligent people on this board. Too early for any concrete numbers but one thing is for sure - Himax will be put to the test to deliver a high quality products in increasing numbers to multiple customers. I think they can do it very profitably. We'll see. Jordan Wu will have his hands full.
IMO, company should be valued in the $3B range. The only thing holding that back is a couple pr's detailing customer interest in lcos and desired production capacity. Now, its not disputable that lcos sales are going to surge in the very near future...so the only question needing to be asked is, does the mkt wait to reward the stock price? I don't think so. Next year's dividend at this stock price is still going to exceed 3%, margins are increasing, the known industry wide slowdown in other segments are about to change, and best of all himx is stealing business from competitors.
Gents, this analysis imo screams of a company that is going to get bought. Either the stock reflects a value too expensive for TSM, Intel, Samsung, etc, to pay, or somebody snatches soon knowing the lack of lcos vis and driver segments temp slowdown are keeping us from $3B or greater mkt cap.....thus making growth through himx acquisition a very attractive move for a big company with cash on hand and looking to increase their bottom line.
Now, has anybody in the tech/specialized semiconductor industry recently announced intentions to put cash on hand at work and grow through acquisition? If you don't know that answer, you should work a little harder on the DD.
Great analysis! If Himx doesn't get bought out we still have record breaking year in 2014 but with Mr Tsai resigning in Sept. and Himax didn't disclosed this fact in annual general meeting minutes only means one thing! If you notice from earlier post that Mr. Tsai has been with company since day one and actually sold some of his shares for to be included in Himax IPO in 2006.
Sentiment: Strong Buy
You sound like Deep Throat "if you don't know that answer, you should work a little harder on the DD". Lol. You sound like you have someone in mind who recently announced acquisition intentions. Who might that be? TIA