United Microelectronics Corporation (UMC) provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. The Hsinchu, Taiwan-based company operates through its Wafer Fabrication and the New Business segments. It serves fabless design companies and integrated device manufacturers. In comparison, Himax Technologies, Inc. (HIMX) in Tainan, Taiwan, is a fabless semiconductor company that provides display imaging processing technologies in China, Taiwan, the Philippines, Korea, Japan, Europe, and the United States. The company operates through two segments–Driver IC and Non-Driver Products.
The global semiconductor shortage has impacted several industries worldwide. In addition, rising COVID-19 cases in China and the Russia-Ukraine war could further strain the supply chain. However, robust demand has allowed companies to raise prices for their chips and generate substantial profits. Also, rising investments worldwide to ramp up semiconductor production should help the industry witness significant growth in the coming months. Moreover, the passage of the $52 billion CHIPS Act is also expected to strengthen domestic semiconductor manufacturing and research.
According to BlueWeave consulting, the global semiconductor market is estimated to grow at a 5.2% CAGR between 2022 -2028. As a result, both UMC and HIMX should benefit.
Click here to checkout our Semiconductor Industry Report for 2022
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On Jan.25, 2022, Jason Wang, UMC’s co-president, said, “We will continue to deepen collaboration with customers with our differentiated specialty technologies, manufacturing excellence, and capacity expansions closely linked to the demands of our partners. At the same time, we will keep pushing for cost reduction and meticulously manage our CapEx to deliver sustainable and healthy returns for our shareholders."
On March 28, 2022, HIMX announced its ultralow power Intelli-Sensing Module featuring AI vision sensing in human detection, people counting, face detection, and face recognition to enable a broad range of context-aware applications on edge. This product could lead to increasing demand for its solutions.
Recent Financial Results
UMC’s operating revenues increased 30.5% year-over-year to NT$59.10 billion (US$2.14 billion) for its fiscal fourth quarter, ended Dec. 31, 2021. The company’s operating income grew 213.7% year-over-year to NT$17.62 billion ($632.97 million), while its net income came in at NT$15.95 billion ($573.08 million), representing a 42.5% year-over-year increase.
HIMX’s revenues increased 56% year-over-year to $451.90 million for its fiscal fourth quarter, ended Dec. 31, 2021. The company’s operating income came in at $177.95 million, representing a 321.8% year-over-year increase. Also, its profit was $142.39 million, up 318.7% year-over-year.
Past and Expected Financial Performance
Over the past three years, UMC’s revenue and EPS have grown at CAGRs of 12.1% and 95.5%, respectively. Analysts expect UMC’s revenue to increase 23.6% for the quarter ending June 30, 2022, and 20.1% in its fiscal year 2022. The company’s EPS is expected to grow 27.8% for the quarter ending June 30, 2022, and 9.6% in its fiscal 2022.
In comparison, HIMX’s revenue and EPS have grown at CAGRs of 63.9% and 296.9%, respectively, over the past three years. The company’s revenue is expected to increase 16.8% for the quarter ending June 30, 2022, and 10.5% in its fiscal 2022. Its EPS is expected to grow 4.2% for the quarter ending June 30, 2022, but decline 3.2% in fiscal 2022.
Profitability
UMC’s trailing-12-month revenue is 4.95 times what HIMX generates. UMC is also more profitable, with EBITDA and levered FCF margins of 45.25% and 22.78%, respectively, compared with HIMX’s 36.28% and 15.62%.
However, HIMX’s ROE, ROA, and ROTC of 63.95%, 27.11%, and 38.93%, respectively, are higher than UMC’s 21.32%, 7.65%, and 9.62%.
Valuation
In terms of forward EV/S, UMC is currently trading at 7.91x, which is 132% higher than HIMX’s 3.41x. Furthermore, UMC’s 4.10x forward EV/EBITDA ratio is 73.7% higher than HIMX’s 2.36x.
So, HIMX is relatively affordable here.
POWR Ratings
UMC has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, HIMX has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
UMC has a B grade for Quality. This is justified given UMC's 22.55% trailing-12-month CAPEX/Sales, which is 921% higher than the 2.21% industry average. In contrast, HIMX has a Quality grade of C, in sync with its 0.49% trailing-12-month CAPEX/Sales, which is 77.9% lower than the 2.21% industry average.
Among the 96 stocks in the B-rated Semiconductor & Wireless Chip industry, UMC is ranked #8. In contrast, HIMX is ranked #59.
Beyond what I have stated above, we have also rated the stocks for Value, Sentiment, Momentum, Growth, and Stability. Click here to view all the UMC ratings. Also, get all the HIMX ratings here.
The Winner
The semiconductor industry is expected to continue snowballing with growing demand for electric vehicles and advanced technologies in a hybrid working environment. While both UMC and HIMX are expected to benefit, we think UMC is a better investment now because of its higher profit margin and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Semiconductor & Wireless Chip industry here.
Click here to checkout our Semiconductor Industry Report for 2022
UMC shares fell $0.07 (-0.88%) in premarket trading Monday. Year-to-date, UMC has declined -32.39%, versus a -10.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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