Foreign brokerages divided over Largan after Q4 results

Taipei, Foreign brokerages appear divided over the outlook for Largan Precision Co., a smartphone camera lens supplier to Apple Inc., after the Taiwanese firm released its results for the fourth quarter of last year on Thursday, showing that iPhone sales failed to meet market expectations.

A U.S.-based securities house said it remained upbeat about Largan's lead over its peers in high-end camera lens technology development, while an Asian brokerage expressed worries over escalating competition from the manufacturer's rivals.

In a research note, the U.S. brokerage left its "buy" recommendation on Largan shares unchanged, with a target price of NT$4,400 (US$143), while the Asian brokerage in a research paper maintained an "underperform" rating and a target of NT$2,200 on the stock.

On Friday, shares in Largan soared 8.23 percent to close at NT$3,550.00, with 1.39 million shares changing hands, on the Taiwan Stock Exchange (TWSE), where the weighted index ended up 0.4 percent at 9,759.40 points.

The buying in Largan shares was sparked by the company's decision not to change its production capacity plan despite concerns over weaker than expected shipments of iPhones.

The stock was also boosted by company expectations that it expects to generate more sales from triple lenses in 2019, which have higher profit margins than other lenses.

Largan shares were not adversely impacted by its fourth quarter results which showed net profit in the October-December period down 22.6 percent from a quarter earlier at NT$6.48 billion, reflecting weaker than expected global smartphone sales, including for the three newest iPhones launched in September.

For 2018, Largan's net profit was down 6.18 percent from a year earlier at NT$24.37 billion, translating to earnings per share of NT$181.68, down from NT$191.77 in 2017.

The U.S. brokerage said it expects Largan to benefit from the efforts made by more smartphone brands to adopt triple lenses for their new models in 2019, in particular South Korean and Chinese clients.

The securities house said Largan could post a 24 percent sequential decline in sales in the first quarter, but due to efforts by more of its clients to employ triple lenses in their new models, its revenue could rebound in the second quarter, up 26 percent from a quarter earlier.

However, the Asian brokerage said Largan's fourth quarter results showed stiff competition in the global market and such competition, in particular from China-based Shenzhen O-Film Tech Co., Ltd., is expected to continue.

The brokerage said the market has been overly upbeat about demand for triple lenses as well as Largan's business outlook.

CNA cannot identify the brokerages because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price-moving forecasts for specific stocks or the wider market.

Source: Focus Taiwan News Channel