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September 25, 2017

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Citigroup lifts Largan price target on increasing lens demand

TAIPEI -- U.S. bank Citigroup Inc. has raised its price target for shares of Taiwanese smartphone lens supplier Largan Precision Co. on expectations that the Apple Inc. supplier will benefit from an industry trend of installing more lenses per device.

In a report issued on June 18, Citigroup raised its price target for Largan to NT$2,450 (US$81.59) from NT$2,200 with a "buy" rating. The bank also revised upward its estimates for Largan's earnings per share in 2014 by 8.4 percent to NT$112.56, and in 2015 by 10 percent to NT$135.73.

Citigroup's new price target, however, was not the highest among the foreign brokerage firms tracking Largan. BNP Paribas increased its target price for Largan to NT$2,800 on June 13, while Hong Kong-based CIMB Securities issued the next highest price target of NT$2,650.

Largan shares ended down 0.23 percent at NT$2,185 Friday in Taipei. The stock broke the share-price record on the Taiwan Stock Exchange on June 19 with a closing price of NT$2,190.

"We believe investors underestimate the growing demand for lenses used in the Internet of Things," said Citigroup analyst Arthur Lai, referring to a new technology trend connecting every electronics devices via the Internet.

Lai expected the camera lens supply chain to have a secular growth, driven by rising adoption of high-specification cameras and the trend of installing multiple cameras per smartphone.

"Thus, we believe Largan, with its superior technology capability, would benefit from such a trend and enjoy enhanced earnings visibility," he said.

The HTC One M8 flagship phone, for example, uses a "Duo" camera that allows users to take pictures first and adjust the focus later, while some models of the Asustek Transformer series tablet-laptop hybrids are already equipped with two cameras, Lai said.

"With multi-lenses per device becoming a prevailing trend, we expect lens usage to outgrow smartphone demand, and Largan can cherry pick orders under such a favorable supply-demand environment," Lai added.

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