Largan Precision Co (大立光), a supplier of camera lenses for Apple Inc’s iPhone 5, could face rising risks in maintaining its margins due to enlarged capacity, Morgan Stanley said.
With its new plant in Greater Taichung having begun production in October last year, Largan is expected to become more “proactive” in manufacturing lower-resolution products to fill up its spare capacity amid weaker demand for the iPhone 5, Morgan Stanley said.
This is evidenced by Largan’s aggressive attitude toward price-sensitive customers in South Korea and its growing interest in 8-megapixel (MP) lens products, which are mainly used in mid-range and entry-level mobile devices, the brokerage said in a note to clients.
“This implies potential downside risks to consensus margins if customers’ forecasts fail to live up to original plans — which we gauge as key risks in 2013, especially after recent Apple/Samsung results and guidance,” Morgan Stanley analyst Jasmine Lu (呂智穎) said.
Morgan Stanley maintained its target price of NT$677 for Largan with an “underweight” rating, in view of lower-than-expected sales growth for the first half of this year.
Shares of Largan gained 3.1 percent to close at NT$797 on Friday.
Germany’s Deutsche Bank AG also kept its target price of NT$820 while maintaining a “hold” rating on the stock, in order to reflect slower-than-expected iPhone camera migration and potential new competition from Kantatsu Co, a Japanese camera lens supplier.
William Yang (楊維倫), an analyst at Deutsche Bank in Taipei, said he believes Largan’s potential new customer in South Korea is unlikely to be Samsung, otherwise Largan would provide a more positive outlook for the second quarter of this year.
Although Largan expected many customer orders for camera lenses greater than 10MP, its product mix of lenses greater than 10MP will probably not exceed 50 percent in the second half of this year. This because Apple might not migrate to the greater than 10MP lens for its new iPhones this year, Yang forecast.