First Solar, Inc.

FSLR Details

First Solar, Inc. (NASDAQ: FSLR) is engaged in manufacturing and commercializing advanced thin-film technology-based photovoltaic (PV) panels and modules. The company uses Cadmium Telluride (CdTe) based PV panels to convert sunlight into electricity. The company operates in two segments, namely 1) Modules Segment, which includes manufacturing and selling CdTe solar modules to third-party consumers. 2) Systems Segment includes power plant services to independent power producers, commercial companies, and other system owners. As of May 17, 2021, the company’s market capitalization stood at USD 7.71 billion.  

Sale of U.S. Development Platform to Leeward: On April 01, 2021, the company closed the sale of a utility-scale solar project platform to Leeward Renewable Energy, LLC, for a final sale consideration of USD 284 million. The decision to sell the solar project platform was made after evaluating the long-term cost structure, competitiveness, and risk-adjusted returns of the company’s U.S. project development business.

Robust Q1FY21 Results: The company reported a substantial 50.97% uptick in net sales to USD 803.37 million in Q1FY21 (ending March 31, 2021) as compared to USD 532.12 million in Q1FY20 (ending March 31, 2020), primarily driven by an increase in the volume of modules sold to third party customers. The Module segment comprised 66.55%, while the Systems segment contributed 33.45% of the net sales in Q1FY21. During the current quarter, FSLR also recorded a one-time gain of USD 150.89 million from sales of businesses. The company reported a sharp increase of 131.16% in net income to USD 209.67 million in Q1FY21 compared to USD 90.70 million in Q1FY20.

Expected Module Shipping (Source: Earnings Presentation, April 29, 2021)

Key Risks: The increase in the global supply of PV modules continues to cause a supply-demand imbalance in the solar technology industry. Moreover, intense price competition within the industry could dampen the company's profitability. Additionally, any mismatch in demand and supply would affect the company's financial state of affairs.

Outlook: On its Q1FY21 earnings call, the company stated its expectation for net sales for FY21 to be in the range of USD 2.85 billion to USD 3.02 billion. Operating income is projected to be in the range of USD 545 million to USD 640 million for FY21. The company is estimating its FY21 EPS to be in the range of USD 4.05 to USD 4.75.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FSLR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: FSLR has declined by 28.98% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 40.70 to USD 112.50. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 82.93. The stock is currently trading below the 200 DMA levels. Considering the significant correction in the stock price in the past three months, high market dominance, and robust fundamentals, we recommend a “BUY” rating on the stock at the closing price of USD 71.55, down by 1.42% as of May 17, 2021. 

Himax Technologies, Inc.

HIMX Details

Himax Technologies, Inc. (NASDAQ: HIMX) is a provider of semiconductor solutions. The company is a market leader in providing display driver integrated circuits (ICs) and timing controllers used in televisions, laptops, mobile phones, etc. The company operates in two segments, namely Driver IC and Non-Driver Products. The former segment provides research, development, and commercialization of display drivers for large, medium, and small-sized TFT-LCD panels which are used in smartphones and consumer electronic products, while the latter provides research, manufacturing, and sale of non-driver products such as timing controllers, 3D sensing solutions, Image sensors, etc. The company had 3012 approved patents and 534 pending patent approvals worldwide as of March 31, 2021. As of May 17, 2021, the company’s market capitalization stood at USD 1.92 billion.

Product Mixture (Source: Investor Presentation, May 2021)

Collaboration with ‘CM Visual Technology’ for the microstructural optical film: On April 19, 2021, the company announced a collaboration with CM Visual Technology Corp. (CMVT) to jointly produce the microstructure optical film, i.e., Omniwide film, to solve optical display performance problems in certain display panel applications. The Omniwide film improves the optical compensation, and it is in high demand from the HIMX clientele. HIMX believes that it will bolster its market position and create constructive technological synergies for increasing optical-related product enhancement.

Robust Q1FY21 Results: The company reported a 67.39% rise in net revenue to USD 309.0 million in Q1FY21 (ending March 31, 2021) compared to USD 184.59 million in Q1FY20 (ending March 31, 2020). The company reported a steep growth in net income to USD 66.29 million in Q1FY21 compared to USD 2.81 million in Q1FY20. As of March 31, 2021, cash and cash equivalents stood at USD 227.37 million while the long-term borrowings were USD 51 million.

Sales Volume and Revenue (Source: Investor Presentation, May 2021)

Key Risks: The company generated 85.20% and 81.10% of its revenues from display drivers integrated into TFT-LCD panels for the FY20 and FY19, respectively. The TFT-LCD panel industry is highly competitive and susceptible to volatile market conditions. Any severe and prolonged industry downturn could result in higher risks to the collectability of the accounts receivable and the stability of the supply chain. As a result, it might adversely affect the company’s operations and financial state of affairs.

Outlook: For Q2FY21, the company is expecting a 15-20% sequential increase in revenues. The gross margin is projected to be in the range of 45.5% to 47.5% of net revenues, depending upon the final product mix.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

HIMX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: HIMX has declined 32.47% in the past three months and is currently trading at the mid-point of the 52-week range of USD 2.91 to USD 17.88. The stock is currently trading above the 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 12.49. On the technical chart, the next support level is USD 7.90. Considering the significant correction in the stock price in the past three months, expected growth in manufacturing capacity, product enhancements, decent fundamentals, and risks associated with the semiconductor industry, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 10.71, down by 3.25% as of May 17, 2021.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level