Foreign brokerages mixed on Largan after disappointing Q1 results

Taipei, Foreign brokerages offered mixed reviews of Largan Precision Co.'s outlook after the smartphone camera lenses supplier reported disappointing first quarter results.

Following disclosure of the results, brokerages gave target prices for Largan shares ranging from NT$2,948.00 (US$100.95) to NT$4,890.00, after the stock closed up 4.85 percent to close at NT$3,460.00 on the Taiwan Stock Exchange on Friday.

Largan reported on Thursday that its net profit for the first quarter fell 53.3 percent from a quarter earlier to NT$4.02 billion, with earnings per share at NT$29.96, the lowest in seven quarters.

The company's gross margin fell 8.35 percentage points from a quarter earlier to 66.33 percent, an eight-quarter low, and was down 4.61 percentage points from a year earlier.

Largan CEO Adam Lin (???) said at an investor conference Thursday that the weaker first quarter results came after its major client cut orders due to slower demand. Analysts said the client was Apple, whose premium iPhone X suffered lower than expected demand.

Among the foreign brokerages, an Asia-based securities house said the first quarter was the low point for Largan and with the worst behind it and major international brands keen to upgrade their flagship models, Largan could be a beneficiary.

In particular, the brokerage said, Largan is expected to benefit from the growing use of multiple lenses by smartphone vendors as well as more applications of 3D sensor technology.

The brokerage said it has kept its "buy" rating on Largan shares unchanged but lowered its target price for the stock slightly to NT$4,890.00 from NT$4,940.00.

CNA cannot identify this brokerage or others below because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price forecasts for specific stocks.

Another brokerage in Asia said Largan was expected to continue to feel the pinch resulting from its customers' inventory adjustments at a time when the global smartphone market approaches saturation.

The securities house said Largan's capacity utilization failed to pick up in the first quarter, and the lackluster showing is expected to continue into the second and third quarters before improving in the fourth quarter. The brokerage said it has lowered its forecast for Largan's net profit by 21 percent for 2018 and 12 percent for 2019 to NT$23.29 billion and NT$30.42 billion, respectively.

As a result, it has maintained a "sell" rating and cut its target price for Largan shares to NT$2,948.00 from NT$3,361.00.

Meanwhile, a European brokerage said Largan shares have fallen significantly since the beginning of this year (down about 24 percent), and negative factors such as weak iPhone X sales have been priced in, leading it to keep its "buy" recommendation on Largan shares.

It cut its target price for the stock to NT$4,200.00 from NT$4,775.00, however, because of the company's falling gross margin and its lower market share in China.

It has also lowered its forecast of Largan's earnings per share by 11.8 percent for 2018 and 12 percent for 2019 to NT$191.4 and NT$250.21, respectively.

Source: Focus Taiwan News Channel