Amkor Technology, Inc.

AMKR Details

Amkor Technology, Inc. (NASDAQ: AMKR) is in the business of providing outsourced semiconductor packaging and test services. It offers turnkey packaging and test services, including semiconductor wafer bump, wafer probe, wafer back-grind, package design, packaging, and test and drop shipment services. The company offers a range of advanced and mainstream packaging and test services. Mainstream products include leadframe packages, substrate-based wirebond packages, and micro-electromechanical system packages. The company provides its services to integrated device manufacturers (IDMs), fabless semiconductor companies, and contract foundries. As of June 14, 2021, the company’s market capitalization stood at USD 5.76 billion.

Measures to drive gains in quality, asset utilization, and efficiency: On February 23, 2021, the company unveiled several artificial intelligences, machine learning, and interconnected systems in its factory that enables it to attain Industry 4.0 Initiatives. Industry 4.0 initiatives helped AMKR to achieve factory intelligence which aids in improving product and service quality, enabling faster decision making and efficient utilization of high-value assets. These initiatives resulted in a 60% improvement in productivity for process engineers from Engineering Data Analytics (EDA) and real-time quality control from Fault Detection & Classification (FDC). All these measures further push the company’s QualityFirst program of delivering Zero-defect quality for automotive and other high-stakes applications.

Strong Q1FY21 Results: The company reported an uptick of 15.1% in total revenue to USD 1.33 billion in Q1FY21 (ending March 31, 2021) compared to USD 1.15 billion in Q1FY20. It generated around 70% of its revenue from Advanced products and the remaining 30% from Mainstream products. Due to its Industry 4.0 initiatives, it was able to achieve a higher gross margin of 20% in Q1FY21, compared to 16.4% in Q1FY20. The company’s net margin also improved by 350 bps to 9.0% in Q1FY21 from 5.5% in Q1FY20. Net income for Q1FY21 grew by 87.52% and stood at USD 119.80 million in contrast to USD 63.89 million in Q1FY20.

Key Risks: Semiconductor industry is highly volatile. Any downturn in demand posed by contraction in consumer spending or dwindling of the economic activity would hurt the operations of the company. Moreover, the majority of AMKR’s factories and operations are outside the US, and so are its customer and vendor operations. Hence, any restrictive trade barriers adopted by the US or foreign governments could result in unfavorable outcomes for the company. Additionally, AMKR’s top 10 customers accounted for 65% of its net sales in FY20. The loss of any of these key customers could hurt the company’s financials.

Outlook: In its Q1FY21 Report, the company expects to achieve net sales of USD 1.29 billion to USD 1.39 billion. EBITDA is estimated to be USD 280.0 million in Q2FY21. It expects to keep an operating margin of 10.9% in Q2FY21. In the coming quarter, the company expects to earn USD 120.0 million as net income and USD 0.49 earning per diluted share.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(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.

AMKR Daily Technical Chart

Stock Recommendation: AMKR has increased by 57.39% and 100.25% in the past 6 months and 12 months, respectively, and is currently leaning towards the higher end of the 52-week range of USD 10.71 to USD 27.50. The stock is currently trading above its 200 DMA level. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 25.52. Considering the uptick in the stock price in the past 12 months, improved margins due to Industry 4.0 initiatives, and decent fundamentals, we recommend a “Hold” rating on the stock at the closing price of USD 23.57, down by 0.08% as of June 14, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

Himax Technologies, Inc.

HIMX Details

Himax Technologies, Inc. (NASDAQ: HIMX) is a fabless semiconductor solution provider that operates through 1) Driver Integrated Circuit (IC), which provides research, development, and commercialization of display drivers for large, medium, and small-sized TFT-LCD panels used in smartphones and consumer electronic products, and 2) Non-Driver Products segments, offering research, manufacturing, and sale of non-driver products such as timing controllers, 3D sensing solutions, Image sensors, etc. As of March 31, 2021, HIMX has 3012 patents on its technologies and has an operational presence in Taiwan, China, Korea, Japan, and the U.S. As of June 14, 2021, the company’s market capitalization stood at USD 2.74 billion.

Product Mix (Source: Investor Presentation, May 2021)

Unveiling Phase Modulation LCoS Platforms: On May 19, 2021, the company announced the unveiling of phase modulation LCoS, a liquid crystal on silicon (LCoS) technology, to be used for two key application platforms, AR Head-Up Display (AR HUD) (used as a holographic display for automotive) and Wavelength Selective Switch (WSS) (used for Wavelength-Division Multiplexing (WDM) optical communications networks).

Supply-Demand Imbalance: In its Q1FY21 Report, HIMX stated that is currently witnessing a serious supply-demand imbalance where demand outpaces supply despite foundries running at 100% capacity. In addition, with the rapid growth of 5G and high-performance computing, there is a significant increase in demand for semiconductors for advanced processes. To sustain the demand, the company secured more capacity for 2021 compared to last year, with accessible capacity expected to grow quarter by quarter during 2021.

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. Net income for Q1FY21 was USD 66.29 million in Q1FY21, 23.59x more than USD 2.81 million reported in Q1FY20. As of March 31, 2021, cash and cash equivalents stood at USD 227.37 million while the long-term borrowings were USD 51.0 million.

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

Key Risks: The company generates a majority of its net revenues from sales to the TFT-LCD panel industry, which is highly cyclical and subject to price fluctuations. Such cyclicality and price fluctuations could negatively impact HIMX's business. In addition, technological innovation may reduce the number of display drivers required for each panel, thereby reducing the dependency on the company for the supply of display drivers and causing a loss of revenue.

Outlook: For Q2FY21, the company is expecting a 15 to 20% QoQ increase in revenues. Gross margin is expected to range between 45.5 to 47.5% of net revenue, depending on the final product mix.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(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

Stock Recommendation: HIMX has increased by 14.86% and 128.88% in the past 3 and 6 months, respectively, and is currently at the higher end of the 52-week range of USD 3.08 to USD 17.88. The stock is currently trading above its 200 DMA level. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 16.97. Considering the significant uptick in the stock price, favorable market conditions, expected growth in manufacturing capacity, product enhancements, and positive outlook, we recommend a “Hold” rating on the stock at the closing price of USD 15.77, up by 10.74% as of June 14, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.