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June 23, 2017

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Largan shares face profit taking despite record-high 2013 results

TAIPEI -- Shares of Largan Precision Co., one of Taiwan's leading smartphone camera lens suppliers, moved slightly lower Friday morning as investors locked in their earlier gains, despite the company's record high net profit for 2013, dealers said.

However, investor confidence in Largan's fundamentals remained strong, as the company is expected to continue to ride the wave of solid global smartphone demand, in particular after Apple Inc. launches its next generation iPhone later this year.

Largan has been dubbed one of the "Apple concept stocks" in the local bourse as the U.S.-based consumer electronics giant is Largan's biggest buyer.

As of 11:24 a.m., shares of Largan had dropped 0.42 percent to NT$1,180.00 (US$39.20), off an earlier high of NT$1,215.00, with 820,000 shares changing hands. The weighted index on the Taiwan Stock Exchange was down 0.03 percent at 8,597.77 points.

"Before Largan released its fourth quarter results Thursday, its shares had been climbing sharply in recent sessions. I am not surprised that the stock has fallen into consolidation mode at the moment," MasterLink Securities Tom Tang said.

At an investor conference Thursday, Largan reported net profit of NT$9.61 billion for 2013, up by about 72 percent from NT$5.58 billion in 2012. Its earnings per share stood at NT$71.84, compared with NT$41.58 the previous year.

In the fourth quarter of last year alone, Largan's net profit totaled NT$3.4 billion, up 46.72 percent from the third quarter, while its EPS for the October-December period rose to NT$25.38 from the previous quarter's NT$17.30.

"The 2013 net profit beat many analysts' estimates, on the back of Largan's strong showing in the fourth quarter. The EPS even went beyond my brokerage's forecast of about NT$66.1," Tang said.

"Some investors pocketed their earlier gains this morning after the data was released but the current consolidation could be short-lived. My brokerage maintains a "buy" recommendation on the stock amid optimism toward Largan's earnings prospects," Tang said.

Tang said Largan may post about NT$11 billion in net profit, or EPS of NT$NT$82.6, for 2014, while its consolidated sales could rise by an annual 24 percent to NT$33.9 billion and its gross margin may increase to 47.5 percent from 47.24 percent last year.

"Its earnings and sales growth will be driven by the launch of the new iPhone later this year. The company's fundamentals remain strong," Tang said. Some institutional investors are expecting Apple to launch its iPhone 6 in June at the earliest.

"Based on its earnings prospects for 2014, Largan's current stock valuation is not too high," Tang said.

Institutional investors, rather than local retail investors, have been the major traders of Largan shares, the most expensive in the local market, therefore, the movement of the stock will depend on institutional investors, he said.

Goldman Sachs has raised its target price on Largan shares to NT$1,480 from 1,350, while CLAS has downgraded its recommendation on the stock to "underperform" from "buy."

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