Taipei, A Japanese brokerage has raised its target price for shares of Taiwan-based smartphone camera lens maker Largan Precision Co. to NT$6,370 (US$209) after the company announced a 37 percent sequential increase in net profit for the second quarter.
On Thursday, Largan reported a net profit of NT$5.50 billion for the second quarter, up 36.87 percent from a quarter earlier and also up 16.69 percent from a year earlier, with earnings per share at NT$41.01, compared with NT$29.96 in the first quarter.
Its second-quarter gross margin -- which reflects the difference between revenue and cost of goods sold -- was 68.61 percent, up 2.28 percentage points from the first quarter and also up 1.93 percentage points year-on-year.
Based on the second quarter results, the Japanese brokerage raised its target price for the stock from NT$5,330 to NT$6,370, the highest among the foreign brokerages that cover Largan, one of Apple's suppliers.
The securities house also maintained its "buy" rating on Largan shares, which rose 2.23 percent to close at NT$5,040.00 on Friday, helping the broader market gain 1.17 percent on the day.
The brokerage said Largan has benefited from its technology lead over its peers in high-end camera lenses to secure more orders for sophisticated devices, improving the company's product portfolio.
After seeing Largan's second quarter results, the brokerage upgraded its forecast for Largan's EPS by 5 percent and 2 percent, respectively, to NT$214.55 in 2018 and NT$289.57 in 2019, compared with NT$193.65 in 2017.
According to Largan, 20 megapixel lenses, which command a higher profit margin, made up 10-20 percent of its total sales of NT$12.30 billion in the second quarter, while 10 megapixel lenses made up 60-70 percent of its revenue.
A U.S.-based brokerage that is also upbeat about Largan's earnings outlook raised its target price on the stock to NT$5,910 from NT$5,200 and maintained a "buy" recommendation, saying more international smartphone brands are expected to adopt triple lenses in their devices, which could further strengthen Largan's profit margin.
The U.S. brokerage also raised its forecast for Largan's EPS by 2 percent and 1 percent, respectively, to NT$200.22 in 2018 and NT$289.69 in 2019.
However, another U.S. securities house has maintained a "neutral" rating and a target price of NT$4,700 for Largan shares, saying that the positive factors have already been factored into the company's share price.
The brokerage also said investors should keep a close eye on rising competition from Largan rivals, such as China-based Sunny Optical Technology (Group) Co. Ltd.
CNA cannot identify the names of the brokerages cited because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price-moving forecasts for specific stocks or for the wider market.
Source: Focus Taiwan News Channel