Pelosi landing in Taiwan & Clearway 2Q22 results ?4

12:58 02-Aug-22

China has scheduled live fire military drills near Taiwan for August 4th through 7th.  I think this sets next week up for substantial rebound in HIMX culminating with the business report, on which I have a neutral stance.

Clearway's poor results were mostly due to extended maintenance and a forced outage in June at the El Segundo natural gas power plant.  Negotiation is still underway to increase and extend the company's contract on the facility.  Sale is always an option too, at the right price.  The executive summary here is that CWEN(A) remains the best of the energy development yield investments, with the share count increasing less than a half million or quarter percent sequentially.  However, the numeric outlook is that Capistrano and other investments provide a path for the dividend to increase to around 40 cents over the next year or so.  At the current 4% yield that equates to a $39.50 share price, but at the historical 6% yield, it's only $26.35.  Both are still far better than holding cash, but I think it's entirely appropriate that this is being analyzed in the same message as Washington and Taiwan's inflation-affecting geopolitical developments.  The flip side is that customers are actually starting to look for longer-term agreements with predictable energy cost in the face of commodity inflation.  So again, the short to medium term looks sketchy, but the long term looks bright.  As a reminder, the company is still searching for a replacement CFO, but otherwise, Clearway has positioned itself ideally to benefit from the pending climate infrastructure legislation, which is critical for domestic solar production.  That's likely to be all from me on the company until D.C. provides some certainty, which may not be available until closer to the midterms.

Vuzix also issued yet another unquantified press release for a custom waveguide order for head mounted military applications.  The only real impact here is even more competition for eMagin aspirations.

I've just watched Pelosi de-board her plane via video and American stock indexes have jumped in response.  HIMX has flipped from slightly negative to slightly positive.  The only further response from China so far is verbal outrage, but this is likely to freeze geopolitical relations and trade for months.  It will therefore also make inflation an even thornier problem for the medium term, but trouble there has been my outlook all along.

On 8/2/22 10:49, Esekla wrote:

The latest is that Pelosi is landing in Taiwan momentarily and China has banned 100 Taiwanese food brands in response.  Himax is down fractionally in early trading, but I would expect this to be the nadir barring a military incursion.  Biden is also scheduled to sign the CHIPS+ act in about 4 hours, and the timing is definitely not coincidental as the law extends the ban on semiconductor manufacturing equipment to China to 14nm, from 10nm.  Technological limits on memory making equipment are also being considered.  China has scrambled fighter jet, but that's expected.  Ultimately, I think this will wind up proving that that China is NOT prepared to invade Taiwan anytime soon and can't afford to directly curb its reliance on Taiwan's technology.  Over the long term, though, it will also prove that China's economy can't be held back from world leadership.

Clearway also reported its second quarter results this morning:

• $4.89 of EPS is mostly from the sale of the thermal business and not comparable to estimates
• from $368M of revenue, which misses by $49M
• dividend raised to 36 cents with a August 31st ex-date, but may be partially unqualified and thus taxable as income due to profit on the thermal sale.
• affirms FY22 CAFD outlook of $365M but increases 5-year projection to $400M from 385M

It looks like Clearway reported an operating loss ex-thermal proceeds, but Taiwan is taking priority for me.  To me, this is a poor short term result in the face of long term prospects that still look good as we wait for the closing of the Total deal, which management still projects happening by year end.  I may follow up separately, but as discussed yesterday, Clearway's prospects also depend on a congressional deal.