Largan shares up on Q4 results, gains capped by caution

The share price increase, however, was capped as Largan gave a cautious forecast for the first half of this year, traditionally a slow season for the industry, dealers said.

As of 11:18 a.m., shares of Largan had climbed 2.59 percent to NT$793.00 (US$26.79), with 3.28 million shares changing hands. The benchmark weighted index on the Taiwan Stock Exchange was down 0.01 percent at 7,848.87 points.

“The jump in fourth quarter earnings prompted bargain hunters to pick up the stock, which had been in consolidation in recent sessions,” Grand Cathay Securities analyst Mars Hsu said.

At an investors' conference Thursday, Largan reported NT$2.87 billion in net profit in the fourth quarter of last year, more than double its NT$1.16 billion net profit in the previous quarter.

Its earnings per share in the last three months of 2012 stood at NT$21.39, up from NT$8.65 in the third quarter, while consolidated sales rose 90 percent to NT$8.58 billion. Its gross margin in the fourth quarter rose to 45.03 percent from 40.7 percent in the third quarter.

For the whole of 2012, Largan posted NT$5.58 billion in net profit or NT$41.58 in EPS. In 2011, its net income was NT$5.20 billion or NT$38.19 per share. Its consolidated sales for 2012 totaled NT$20 billion, up more than 20 percent from a year earlier.

“Because of the company's strong showing in the fourth quarter, its 2012 EPS was higher than a market estimate of NT$39-NT$40,” Hsu said.

Hsu said, however, investors should trade the stock with caution as Largan has issued a cautious assessment of market conditions for the first half of this year.

Largan Chief Executive Officer Adam Lin said at the investors' conference that some of the company's import clients have cut orders in the first quarter, which means sales in the current quarter could fall from the fourth quarter of last year. Lin also said that the company remains cautious about the second quarter.

“Inventory adjustments due to the slow season are understood. Because of falling sales, I expect Largan's gross margin to drop to around 42 percent in the first quarter,” Hsu said.

Largan's performance will depend largely on how Apple Inc., which accounted for about 60 percent of the Taiwanese firm's total sales in the fourth quarter, launches new products to attract consumers, he said.

“Amid cautious sentiment for the first half of this year, I think Largan shares will encounter stiff technical resistance as the stock moves closer to NT$800,” Hsu said.

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