Largan Precision Co (大立光), a major smartphone camera lens supplier to Apple Inc, might face limited earnings growth this year given the industry’s slow transition to higher-resolution lenses, Yuanta Securities Investment Consulting Co (元大投顧) Taipei-based analyst Jeff Pu (蒲得宇) said.
“With limited earnings upside and high market expectations, we continue to suggest investors take profit on the stock,” Pu wrote in a note to clients on Thursday last week.
Largan reported sales of NT$4 billion (US$127 million) for last month, up 66 percent year-on-year, but down 30 percent from December last year, falling below market expectations of a 20 percent decline month-on-month.
Pu said that Largan’s sales for last month came in below expectations due to lower demand for Apple iPhones, a smaller proportion of iPhone 6 Plus models in Largan’s shipment mix and weak demand from Chinese handset brands.
“February will be affected by fewer working days, and we don’t expect much of a recovery in March owing to the fast-falling number of iPhone [shipments],” said Pu, who maintained his “downgrade” rating on Largan shares and his price target of NT$2,650 for the stock.
Pu said that the camera specifications of the next-generation iPhone, dubbed iPhone 6S, will stay the same as the current iPhone 6 at 8-megapixels, limiting potential catalysts to push Largan’s stock price higher in the second half of the year.
Pu said that although the migration to 8-megapixel and 13-megapixel lenses would remain strong among Chinese vendors of mid-tier and low-end phones, upgrades to 16-megapixel and 20-megapixel lenses for flagship phones would be slow given the limited supply of CMOS sensors — used to convert light into electrons.
“On the other hand, we expect the specification migration in high-end models to be from new features, such as optical image stabilization and fast autofocus, which benefit module makers more than lens makers, in our view,” Pu said.
Data from Japanese research firm Techno Systems Research Co showed that Japan-based Sony Corp led the 2013 global CMOS image sensor market with a 33 percent share by sales value.
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