At NT$1,875 per share, Largan Precision Co’s (大立光) stock is already the highest in the nation at present, but it could soon break the record set by Cathay Life Insurance Co (國泰人壽) in 1989, when its share price hit NT$1,975.
Moreover, the handset camera lens maker’s shares could move further up and likely become the first stock to reach NT$2,000 in the history of the local bourse, as its potential earnings upside is likely to attract more investors to chase its shares.
Taiwan Stock Exchange data show that investors’ confidence in Largan has pushed the stock to gain 44.44 percent so far this year and 155.09 percent over the past 12 months.
Over the same periods, the TAIEX has risen just 3.88 percent and 11.51 percent respectively.
On Thursday last week, the company reported better-than-expected earnings for the first quarter of the year, with net profit growing 62.2 percent year-on-year to NT$2.999 billion (US$98.9 million), or earnings per share of NT$22.36, thanks to rising high-end lens contributions, better production yield rates, a decreased mix of lower-margin voice coil motor assembly business and foreign exchange gains.
Gross margin increased to 55.6 percent in the first quarter, compared with 48.3 percent the previous quarter and 41.9 percent a year earlier, while operating margin also improved to 46.9 percent from 41 percent and 32.8 percent over the same period respectively.
Analysts forecast the Greater Taichung-based Largan could see sequential sales growth from this quarter, as the company is set to continue benefiting from its solid industry leadership in high-end market and a rapid growth in China’s smartphone consumption.
“Largan’s strong first-quarter gross margin supports our belief that it should be the major beneficiary of the current spec upgrade trend for lens modules, such as higher megapixels, larger aperture ratios and the addition of optical image stabilization,” Daiwa Capital Markets analysts Kylie Huang (黃奎毓) and Jason Chen said in a client note on Thursday.
“We expect Largan to not only secure a lion’s share for the upcoming iPhone 6, but also benefit from rising sales volume and average selling prices from China smartphone brands,” they added.
Daiwa, raising its target price on the company’s stock to NT$2,180, has adjusted upward its share earnings forecasts by between 16 percent and 22 percent for this year to 2016, given higher gross margin and revenue assumptions.
UBS Securities has also lifted its 12-month target price on Largan to NT$2,300, as well as revised its EPS estimates to NT$114.07 for this year, NT$143.70 for next year and NT$$155.82 for 2016, from NT$95.29, NT$$118.83 and NT$128.89 it previously forecast, to factor in higher average selling price and better margin trend.
“We are encouraged by Largan’s comment on the smaller pricing pressure for high-spec [models] than for the regular specs,” UBS Securities analysts Arthur Hsieh (謝宗文) and Alice Chen said in their note on Friday.
At its conference call on Thursday, Largan said features of higher specifications include a bigger aperture, better relative luminance and a larger shooting angle, as well as higher uniformity, in addition to more pixels.
“Given the change in specs, we think the entry barrier could rise even further,” the UBS analysts said.
The moves by Daiwa and UBS came on the heels of similar upward stock price revisions made by other brokerages, including Maybank Kim Eng Securities Ltd at NT$2,305, Barclays Capital at NT$2,200, SinoPac Securities Co (永豐金證券) at NT$2,250, Yuanta Securities Corp (元大證券) at NT$2,240 and HSBC Securities at NT$2,130.
Largan also counts HTC Corp (宏達電), BlackBerry Ltd, Motorola Mobility, Nokia Oyj, Samsung Electronics Co, Xiaomi Corp (小米), Huawei Technologies Co Ltd (華為) and ZTE Corp (中興) among its major clients.
Yuanta Securities Corp (元大證券) analyst Dennis Chan (詹宗勳) said the market has significantly underestimated Largan’s strength in China, where more smartphone vendors are lured by Largan’s quality lenses and track record.
“As such, Largan has even greater pricing power in the oligopolistic high-end lens market,” Chan said in a note on Friday.
HSBC Securities analyst Yolanda Wang (王郁雅) agreed, saying that a fast migration to 8 megapixels in the front-end cameras and 13 megapixels in the main cameras in new models of Chinese brands would keep Largan far ahead of its competitors.
“Largan sees limited competition in these segments and hence enjoys higher margins,” Wang said on Friday.
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