Taiwanese camera lens module maker Largan Precision Co (大立光) is expected to have a bullish year this year, as smartphone makers are more than willing to equip their phones with a high-end camera, which is becoming a crucial factor for phone brands to differentiate themselves from rivals.
Largan, which supplies camera lens modules for Apple Inc and Chinese smartphone maker Xiaomi Corp (小米), last week reported record-high earnings per share of NT$144.85 (US$4.57) for the full year, marking the highest earnings per share in the TAIEX and the company’s history.
Largan’s camera lens modules for the smartphone segment accounted for between 85 percent and 90 percent of its overall revenue.
Though the company declined to give a specific business outlook as usual, analysts expect this to be another good year for the company, which holds a 36 percent share of the world’s camera lens modules market, benefiting from favorable industry trends.
As the smartphone market becomes saturated, smartphone brands will find it increasingly harder to differentiate their products from their rivals’ offerings.
Camera specifications are one important element used to draw consumers’ attention. A better camera might convince consumers to pay more for better photographic quality, so it is one of the key features in which handset manufacturers are willing to invest.
In light of this, Largan is likely to benefit from the current smartphone camera upgrade cycle due to its leading position in the high-end lens module segment, analysts said.
“Given limited competition and favorable industry developments, Largan remains our top pick in the components segment,” CIMB Securities Ltd analyst Felix Pan (潘俊宏) said in a client note released on Thursday.
UBS Securities Pte Ltd shared a similar view to CIMB.
Many smartphone manufacturers, including Asustek Computer Inc (華碩) and HTC Corp (宏達電), announced new models with higher camera specifications at this year’s Consumer Electronics Show in Las Vegas, UBS analyst Arthur Hsieh (謝宗文) said in a client note released on Friday.
“Most of these phones use 13 megapixel rear cameras and 5 megapixel front cameras. Only a few models use lower-specification camera modules, as those models target emerging markets,” Hsieh said, adding that: “We believe this supports our positive view on Largan, given its dominance in the high-end lens module market.”
During a conference call last week, Largan CEO Adam Lin (林恩平) said that not only is the trend of megapixel migration in the industry becoming more obvious, but he has also seen rising customer adoption for dual cameras, optical image stabilization, wider apertures and lenses with an optical zoom function.
Largan said several dual camera models bundled with voice coil motors (VCM) are already in the mass production process. It has also sent out samples with optical zoom for testing, but they are not ready for shipment yet, the company said.
Lin said that volume-wise, dual cameras have more direct revenue contribution among all specification migrations this year.
In addition to its solid outlook for the camera lens module segment, the company said it has started a small number of VCM product shipments to original equipment manufacturers (OEM) and camera module makers through its 49-percent owned subsidiary Largan Digital, which should help Largan with vertical integration.
“By manufacturing VCMs on its own, Largan could help handset OEMs simplify their supply chain management and help camera module makers improve their yield rate,” Hsieh said.
Hsieh said he thinks Largan has a good chance of being successful in this business, as its total costs could be more competitive if it bundles sales with a camera lens.
Even though the dynamics of the smartphone industry seem advantageous for Largan, if handset camera specification migration is slower than expected and competition is stronger than expected, then those factors would bring downside risks to the company, Hsieh said.
Yuanta Securities and Investment Consulting (元大投顧) downgraded its rating for Largan the night after the company held the conference call, citing Yuanta’s expectation of muted specification migration heading into Apple’s upcoming iPhone 6S model cycle.
“We believe Largan should remain a dominant supplier for the iPhone 6S, but the limited specification upgrades for the iPhone 6S camera will cap Largan’s average selling price,” Yuanta analyst Jeff Pu (蒲得宇) said in a client note released on Thursday.
Pu said he does not expect significant changes for the iPhone 6S this year, while he expects the next significant specification migration to likely accompany the iPhone 7 in the second half of next year.
On the other hand, if Largan’s competitors catch up with new designs faster than expected, then it is possible that Largan could lose market share, leading to a de-rating in the market, Hsieh said.
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