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July 24, 2017

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Citigroup rates 'buy' on Largan Precision shares

TAIPEI --- Citigroup Inc. has set the highest price target among foreign brokerages recently for Largan Precision Co., a Taiwanese camera-lens supplier for Apple Inc., based upon its anticipated competitive technology.

The U.S. bank rated a "buy" on Largan shares with a price target of NT$1,620 (US$53.3), citing its increasing contribution due to the demand for advanced camera features, such as Optical Image Stabilization (OIS) and 10-megapixel resolution, along with orders from Chinese customers.

"Largan's tech leadership becomes most noticeable when specification upgrades take place," Arthur Lai, a Taipei-based analyst at Citigroup, wrote in a note to clients dated Feb. 21.

"With the potential adoption of OIS, 10+MP, and a wider aperture camera by Apple in next-generation iPhones, Largan should be securely ahead of competitors in coming years, leading to stable revenues and expanding profits," he said.

While Citi estimated Largan had previously derived 50 percent of its revenues from Apple, the Taiwan-based supplier is now diversifying its client base by making inroads among Chinese smartphone customers and South Korea's Samsung Electronics Co., Lai said.

Chinese smartphone customers accounted for about 20 percent of Largan's revenue in 2013, and the sales contribution is projected to grow by double digits in 2014, he said.

Shares in Largan climbed the daily maximum of 7 percent to close at NT$1,245 Friday in Taipei.

In a Feb. 20 report, Deutsche Securities raised its target price on Largan shares to NT$1,500 from NT$1,400, recommending a "buy" on the stock. Goldman Sachs has also raised the stock's price target to NT$1,480 and Bank of America Merrill Lynch has set a new price target at NT$1,450.

According to Deutsche Securities, Largan is expected to benefit from efforts to upgrade its lens production technology to launch zoom lens products later this year, a move which could help the company maintain its lead over its peers.

The brokerage said Largan is expected to post NT$88.80 in earnings per share in 2014, and its bottom line could further improve in 2015 with EPS of NT$115.

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