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Foreign brokerages mixed about Largan despite strong Q4 earnings

2018/01/13 18:20:45

Taipei, Jan. 13 (CNA) Foreign brokerages remain mixed about the prospects of Taiwan-based Largan Precision Co., a smartphone camera lens supplier to Apple Inc., despite the manufacturer posting strong earnings for the fourth quarter of last year.

Five foreign brokerages have issued their own target prices on Largan shares, ranging from NT$3,361 (US$114) to NT$5,450, while giving "buy," "neutral" or "sell" recommendations on the stock.

On Friday, Largan shares staged a strong technical rebound from a recent slump, up 10 percent, the maximum daily increase, to close at NT$4,100 on the Taiwan Stock Exchange, where the weighted index ended up 0.68 percent at 10,883.96 points.

The significant upturn came after Largan reported on Thursday that its net profit for the fourth quarter hit a new high of NT$8.61 billion, up 10.8 percent from the third quarter, with earnings per share (EPS) of NT$64.18, also a record high.

Largan shares closed at NT$5,985 on Nov. 3, 2017, a historic closing high for the company. However, the stock has since encountered selling amid worries over iPhone X shipments and moved lower in recent sessions to end at a one-year low of NT$3,730.00 on Thursday, a 37.7 percent drop from Nov. 3.

In an investor conference held on Thursday, Largan said its net profit for the fourth quarter hit a new high of NT$8.61 billion in net profit, up 10.8 percent from the third quarter, with earnings per share (EPS) of NT$64.18, also a record high.

In the October-December period, Largan's gross margin -- the difference between revenue and cost of goods sold -- rose 3.75 percentage points from the previous quarter to 71.68 percent, also a record high. The fourth quarter figure was up 1.02 percentage points from a year earlier.

Market analysts said the higher gross margin reflected Largan's efforts to adjust its product portfolio by adding more high-end camera lenses to strengthen its bottom line.

A European brokerage said the record high fourth quarter gross margin helped Largan offset the impact of falling demand from Chinese brands at a time of a weakening smartphone market in China.

The European securities house said with demand from China likely to remain slow, it expects Largan's sales for the first quarter of this year to be little changed from a year earlier, compared with an earlier market estimate of a 15 percent year-on-year increase.

The brokerage has maintained a "buy" rating on Largan shares but cut its target price from NT$5,935 to NT$5,450.

A U.S.-based brokerage which has reiterated a "neutral" recommendation and a target price of NT$3,600 on Largan shares, said worries over sales of the signature iPhone X remain, while competition from rivals is expected to escalate and erode Largan's market share.

For its part, an Asian brokerage said Apple and other international smartphone brands in the Android camp tend to diversify their supply chain, which could affect Largan's orders.

As a result, the Asian securities house has lowered its target price on Largan shares from NT$3,916 to NT$3,361, while maintaining a "sell" recommendation on the stock.

CNA cannot identify the brokerages because media outlets in Taiwan are not allowed to report the names of foreign brokerages when they give price forecasts for specific stocks and fluctuations in the index.

(By Jeffery Wu and Frances Huang)