Himax tipped to benefit from flat panel demand

Morgan Stanley last week included Himax Technologies Inc (奇景光電) in its investment portfolio as the US brokerage house expects the world's No. 3 maker of chips used in liquid-crystal-display (LCD) panels to benefit from fast-growing demand for flat panels, largely for use in slim-screen televisions.

Himax Technologies, which has a 16 percent share of the world's US$3 billion market for large thin-film-transistor (TFT)-LCD panel drivers, is one of the fastest-growing semiconductor companies in the industry, Morgan Stanley analyst Frank Wang (王安亞) wrote in a report issued last week.

Three years ago, the company only held a 6 percent share of the global market, he said.

"The company's growth potential is not only in large panel LCD drivers. It is [also] entering new markets such as handset drivers and LCD TV controllers," Wang said.

For investors wishing to reap profits from the booming TFT-LCD industry, but avoid the potential for price volatility as a result of supply gluts, Wang said the LCD driver segment could become the "default investment choice."

Morgan Stanley gave an "overweight-v" rating on Himax Technologies with a 12-month price target of US$12, which represents a 50 percent upside from the closing price of US$8 last Monday.

The Tainan-headquartered chipmaker debuted its shares on the NASDAQ stock market on March 31. Himax Technologies and its shareholders sold 52 million American depository shares at US$9 apiece on March 31, completing the biggest technology initial public offering by an Asian company this year. Each American depository share represents one ordinary share.

Wang projected that Himax Technologies' earnings would increase at a 26 percent annual rate until 2008, while revenues would grow at 34 percent annually. The predicted annual growth rates are much higher than the 7 percent average for the industry.

Himax Technologies is expected to post earnings per share of US$0.48 for this year, up 41 percent from US$0.35 a share last year, Wang said. Revenues would grow to exceed US$1 billion next year from US$796 million this year, he added.

A new LCD TV controller would be a cash cow for Himax Technologies as TV controllers have an average selling price 10 times that of large panel drivers and boast a 50 percent gross margin, according to Wang.

The company now supplies TV controllers to vendors Chi Mei Corp (奇美), Westinghouse Electric Corp of the US and Funai Electric Co of Japan.

LCD TV sales around the globe will jump to 100 million units in 2010, Morgan Stanley predicted.

However, Wang warned that Himax Technologies has a highly concentrated product mix and a short list of customers, as well as lower gross margins than other semiconductor companies.

Chi Mei Optoelectronics Corp (奇美電子), the nation's second-largest maker of LCD panels for TVs and computers, would remain Himax Technologies' top customer, Morgan Stanley said, contributing more than half of the company's total revenues this year and next year.

Himax Technologies also supplies panel drivers to local panel maker Chunghwa Picture Tubes Ltd (中華映管) and Chinese SVA-NEC (上海廣電), according to Wang.

Large panel drivers would account for more than 70 percent of the company's total revenues this year and next year, he said.