Himax Could See Near-Term Sales Weakness Amid Order Slowdown From Chinese Handset OEMs

With a number of Chinese handset OEM’s slowing down new ordering, Himax Technologies, Inc. (ADR) HIMX may face some difficulties on second- and third-quarter revenues in its Touch and Display Interface (TDDI) segment, according to Northland Capital.

“We believe the impact will be relatively tame with orders coming back later in the year, but there could be some revenue weakness in the near-term in the small/medium display driver business,” said analyst Tom Sepenzis in a recent note.

Despite the expected near-term weakness, Sepenzis models revenues of $156 million in the June quarter and $190 million in the September quarter, ahead of consensus estimates of $153 million and $176 million, respectively.

Northland Capital maintains an Outperform rating on Himax with a $10 price target.

Although Northland Capital acknowledged its estimates may be too aggressive considering the slowdown in China, the firm continues to believe its CY2018 estimates are “unduly conservative” given the companies 3D sensing opportunities.

Investors are becoming more focused on Himax’s 3D sensing opportunities to drive future growth with their significantly higher margins than the company's legacy components. With the first component customer shipment underway, Northland Capital believes shipments will pick up steam in Q3 and Q4.

“With the 3D sensing piece entering the model in the September quarter, and the potential for an even greater contribution next year with a large South Korean handset vendor, we would not expect the pendulum to swing too far lower given weaker near-term results,” added Sepenezis.

If the stock does move lower in the near term, the firm sees it as a buying opportunity given its future growth prospects.

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