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原始內容
08 Oct 2026 10:19:53 ET │ 16 pages
Largan Precision (3008.TW)
Better FAU visibility despite smartphone shortfall
CITI'S TAKE
Largan's 3Q26 earning was below expectation. 3Q26 revenue of NT$15.65bn (up 15% QoQ but down 11% YoY). GM declined to 42.2% with EPS reaching NT$39.6. Management attributed margin pressure to manufacturing yield challenges associated with increasingly complicated smartphone lenses, alongside the rising cost of renewable electricity. The latter is becoming a structural cost burden because of contractual commitments to customers. While yields are gradually improving, management see weakening smartphone order flow into 4Q26. Nevertheless, the management's view on FAU development is positive and seeing great feedback and strong business engagement into the next generation CPO design. We reiterate our Buy and see any pull back on weak smartphone business as a great buying opportunity.
CPO Strategy - Moving to integrated FAU and carrier assembly - The most important development during the call is Largan's expanded product scope. Previously, the company primarily targeted Fiber Array alignment, positioning itself as a high-precision component supplier to established FAU manufacturers. Management now plans to produce FAU, purchase PMLA and other optical components, and perform precision optical coupling and assembly to deliver complete FAUs. It also intends to pursue the additional assembly step of mounting the FAU onto a carrier, which subsequently interfaces with the receptacle. This represents a meaningful expansion in value capture, moving Largan to higher-value integrated optical interconnect assemblies.
Customer qualification has progressed well, production starting in mid-2027 - Largan indicated that FA qualification is complete, and the automated pilot line is already operational and has been inspected repeatedly by the customer. Largan currently has one customer progressing toward commercial volume production, while several other customers, including CSP-related opportunities, are involved in next-generation development targeting 2028. Management expects the first scaled production lines to be ready around mid-2027, with meaningful FAU mass production potentially beginning in 2H27. Management also confirmed that recently acquired land and facilities have designated expansion purposes, primarily cleanrooms and production lines for FA/FAU rather than smartphone lenses.
Earnings Summary
| Year to 31 Dec | Net Profit (NT$M) | Diluted EPS (NT$) | EPS growth (%) | P/E (x) | P/B (x) | ROE (%) | Yield (%) |
|---|---|---|---|---|---|---|---|
| 2024A | 25,915 | 194.17 | 44.8 | 34.3 | 4.8 | 14.8 | 1.3 |
| 2025A | 21,275 | 159.40 | -17.9 | 41.8 | 4.7 | 11.3 | 0.8 |
| 2026E | 20,449 | 155.54 | -2.4 | 42.8 | 4.3 | 10.4 | 1.2 |
| 2027E | 21,410 | 163.69 | 5.2 | 40.7 | 4.1 | 10.3 | 1.2 |
| 2028E | 45,921 | 351.08 | 114.5 | 19.0 | 3.5 | 19.8 | 2.6 |
Source: Powered by dataCentral
See Appendix A-1 for Analyst Certification, Important Disclosures and Research Analyst Affiliations.
n Buy
Short-Term View: Upside
Price (08 Oct 26 13:30) NT$6,660.00
Target price NT$8,500.00
Expected share price return
27.6%
Expected dividend yield
1.2%
Expected total return
28.8%
Market Cap NT$871,116M
US$27,335M
Price Performance
(RIC: 3008.TW, BB: 3008 TT)
Laura (Chia Yi) Chen AC
+886-2-8726-9090 laura.cy.chen@citi.com
Jack Chen +886-2-8726-9091
jack1.chen@citi.com
Nicholas Lai
+886-2-8726-9093 nicholas.lai@citi.com Seeing multiple generation and years opportunities - Compared with these broader solutions providers, Largan remains primarily as a high-precision manufacturing and assembly specialist. Management described its current business relationship as closer to contract manufacturing, with direct discussions with end customers focused mainly on next-generation products. On product architecture, the initial 2027 commercial project remains focused on single-row FA using grating coupling (GC), while multi-row and multilayer configurations remain in sampling and are primarily associated with 2028 programs. Management believes its FA/FAU solution is broadly applicable to both CPO and NPO when the underlying optical interface remains similar, because the primary difference is the placement of the optical package. Largan's primary differentiation is not the FA design itself but its ability to manufacture highly precise assembly using imperfect input components.
| Profit & Loss (NT$m) | 3008.TW: Fiscal year end 31-Dec - 2024 | 2025 | 2026E | 2027E | 2028E | Price: NT$6,660.00; TP: - Valuation ratios | NT$8,500.00; Market Cap: NT$871,116m; Recomm: Buy - 2024 | NT$8,500.00; Market Cap: NT$871,116m; Recomm: Buy - 2025 | NT$8,500.00; Market Cap: NT$871,116m; Recomm: Buy - 2026E | NT$8,500.00; Market Cap: NT$871,116m; Recomm: Buy - 2027E | NT$8,500.00; Market Cap: NT$871,116m; Recomm: Buy - 2028E |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales revenue | 59,458 | 61,148 | 61,099 | 77,607 | 163,572 | PE (x) | 34.3 | 41.8 | 42.8 | 40.7 | 19.0 |
| Cost of sales | -28,248 | -30,311 | -33,508 | -44,656 | -88,753 | PB (x) | 4.8 | 4.7 | 4.3 | 4.1 | 3.5 |
| Gross profit | 31,209 | 30,837 | 27,591 | 32,950 | 74,819 | EV/EBITDA (x) | 24.9 | 24.1 | 25.7 | 22.6 | 11.0 |
| Gross Margin (%) | 52.5 | 50.4 | 45.2 | 42.5 | 45.7 | FCF yield (%) | 1.8 | 1.1 | 2.9 | 2.3 | 5.1 |
| EBITDA (Adj) | 29,617 | 30,526 | 28,406 | 31,769 | 63,555 | Dividend yield (%) | 1.3 | 0.8 | 1.2 | 1.2 | 2.6 |
| EBITDA Margin (Adj) (%) | 49.8 | 49.9 | 46.5 | 40.9 | 38.9 | Payout ratio (%) | 44 | 32 | 50 | 50 | 50 |
| Depreciation | -5,585 | -6,968 | -8,027 | -9,246 | -10,713 | ROE (%) | 14.8 | 11.3 | 10.4 | 10.3 | 19.8 |
| Amortisation | 0 | 0 | 0 | 0 | 0 | Cashflow (NT$m) | 2024 | 2025 | 2026E | 2027E | 2028E |
| EBIT (Adj) | 24,032 | 23,558 | 20,379 | 22,522 | 52,842 | EBITDA | 29,617 | 30,526 | 28,406 | 31,769 | 63,555 |
| EBIT Margin (Adj) (%) | 40.4 | 38.5 | 33.4 | 29.0 | 32.3 | Working capital | -4,417 | -6,864 | 7,411 | -843 | -1,569 |
| Net interest | 4,404 | 4,259 | 3,745 | 3,600 | 3,600 | Other | 2,178 | -1,998 | 146 | -1,112 | -6,921 |
| Associates | 0 | 3 | 102 | 200 | 200 | Operating cashflow | 27,378 | 21,664 | 35,963 | 29,813 | 55,065 |
| Non-Op/Except/Other Adj | 3,738 | -1,919 | 957 | 280 | 280 | Capex | -11,385 | -11,504 | -10,302 | -9,948 | -10,410 |
| Pre-tax profit | 32,174 | 25,900 | 25,183 | 26,602 | 56,922 | Net acq/disposals | 1,369 | 0 | -100 | -200 | -200 |
| Tax | -5,963 | -4,340 | -4,658 | -5,192 | -11,001 | Other | -5,514 | 8,798 | -1,078 | 0 | 0 |
| Extraord./Min.Int./Pref.div. | -296 | -285 | -77 | 0 | 0 | Investing cashflow | -15,531 | -2,707 | -11,480 | -10,148 | -10,610 |
| Reported net profit | 25,915 | 21,275 | 20,449 | 21,410 | 45,921 | Dividends paid | -10,811 | -11,412 | -6,802 | -10,265 | -10,748 |
| Net Margin (%) | 43.6 | 34.8 | 33.5 | 27.6 | 28.1 | Financing cashflow | -5,679 | -16,674 | -8,251 | -10,265 | -10,748 |
| Core NPAT | 25,915 | 21,275 | 20,449 | 21,410 | 45,921 | Net change in cash | 6,168 | 2,283 | 16,232 | 9,400 | 33,707 |
| Per share data | 2024 | 2025 | 2026E | 2027E | 2028E | Free cashflow to s/holders | 15,993 | 10,160 | 25,661 | 19,865 | 44,655 |
| Reported EPS ($) | 194.17 | 159.40 | 155.54 | 163.69 | 351.08 | ||||||
| Core EPS ($) | 194.17 | 159.40 | 155.54 | 163.69 | 351.08 | ||||||
| DPS ($) | 85.50 | 50.96 | 78.48 | 82.17 | 176.24 | ||||||
| CFPS ($) | 205.13 | 162.32 | 273.56 | 227.93 | 420.99 | ||||||
| FCFPS | 119.83 | 76.12 | 195.19 | 151.87 | 341.40 | ||||||
| ($) BVPS ($) | 1,389.00 | 1,430.06 | 1,552.87 | 1,638.07 | 1,906.98 | ||||||
| Wtd avg ord shares (m) | 133 | 133 | 131 | 131 | 131 | ||||||
| Wtd avg diluted shares (m) | 133 | 133 | 131 | 131 | 131 | ||||||
| Growth rates | 2024 | 2025 | 2026E | 2027E | 2028E | ||||||
| Sales revenue (%) | 21.7 | 2.8 | -0.1 | 27.0 | 110.8 | ||||||
| EBIT (Adj) (%) | 35.0 | -2.0 | -13.5 | 10.5 | 134.6 | ||||||
| Core NPAT (%) | 44.8 | -17.9 | -3.9 | 4.7 | 114.5 | ||||||
| Core EPS (%) | 44.8 | -17.9 | -2.4 | 5.2 | 114.5 | ||||||
| Balance Sheet (NT$m) | 2024 | 2025 | 2026E | 2027E | 2028E | ||||||
| Cash & cash equiv. | 113,658 | 115,942 | 132,174 | 141,574 | 175,281 | ||||||
| Accounts receivables | 10,360 | 10,462 | 12,457 | 23,869 | 38,792 | ||||||
| Inventory | 5,733 | 6,713 | 6,331 | 12,131 | 19,715 | ||||||
| Net fixed & other tangibles | 46,936 | 51,472 | 53,748 | 54,450 | 54,146 | ||||||
| Goodwill & intangibles | 0 | 0 | 0 | 0 | 0 | ||||||
| Financial & other assets | 39,839 | 36,198 | 37,859 | 57,893 | 84,031 | ||||||
| Total assets | 216,527 | 220,787 | 242,569 | 289,915 | 371,966 | ||||||
| Accounts payable | 1,855 | 1,728 | 3,136 | 6,249 | 9,854 | ||||||
| Short-term debt | 203 | 0 | 0 | 0 | 0 | ||||||
| Long-term debt | 0 | 0 | 0 | 0 | 0 | ||||||
| Provisions & other liab | 29,081 | 28,191 | 36,321 | 69,409 | 112,681 | ||||||
| Total liabilities | 31,139 | 29,919 | 39,457 | 75,659 | 122,536 | ||||||
| Shareholders' equity | 185,388 | 190,868 | 203,112 | 214,257 | 249,430 | ||||||
| Minority interests | 0 | 0 | 0 | 0 | 0 | ||||||
| Total equity | 185,388 | 190,868 | 203,112 | 214,257 | 249,430 | ||||||
| Net debt (Adj) | -113,455 | -115,942 | -132,174 | -141,573 | -175,280 | ||||||
| Net debt to equity (Adj) (%) | -61.2 | -60.7 | |||||||||
| For definitions of the items in this table, | please click here. | -65.1 | -66.1 | -70.3 |
Automation and Yield Control Are the Real Competitive Advantages
During the earnings call, Largan's management emphasized that almost all critical FA/FAU alignment equipment is developed internally, including machinery and control software. This enables faster equipment modification, process optimization and troubleshooting compared with labor-intensive assembly. Automated production also offers better traceability and root-cause analysis when yield problems emerge. Management stated that customer feedback is positive and the FAU certification process progressing well. The key competitive advantage, in our view, is the ability to combine submicron accuracy, high throughput and reproducible yields at scale, rather than precision alone.
In our view, the earnings call supports a more constructive medium-term view of Largan's CPO opportunities than our previous assessment, particularly given the apparent completion of initial FA qualification, customer interest in integrated FAU assembly and a clearer path toward commercial production in 2H27. Moving from standalone FA to FAU and potentially carrier assembly could materially increase revenue content per optical connection, while the company's automated manufacturing capabilities may support differentiation in increasingly complex, high-density optical architectures. The next growth opportunity could emerge from multi-row FA and higher-channel-count optical solutions beginning in 2028, particularly as AI networking bandwidth moves beyond current-generation platforms.
Maintaining Buy on better FAU visibility
Given the weak smartphone order flow and GM pressure in the near term, we revise down our net income projections by 9%/29% for 2026/2027, but slightly raise our 2028 net income projection by 1% given the solid growth opportunity in FAU business. However, we think Largan is transitioning from a smartphone optics manufacturer into a potential high-precision optical interconnect assembly supplier. As they are moving to FAU not just FA; we assume higher revenue contribution for 2027/2028 of 28%/44% considering Largan could get 15%/30% market share.
Figure 1. Largan - 3Q26 results overview
| (NT$mn) | 3Q26 Actual | 3Q25 Actual | 2Q26 Actual | YoY | QoQ | 3Q26 | P | 3Q26 Consensus | P |
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 15,651 | 17,677 | 13,665 | -11% | 15% | 16,011 | -2% | 18,196 | -14% |
| Gross profit | 6,607 | 8,352 | 6,753 | -21% | -2% | 7,782 | -15% | 9,120 | -28% |
| OP profit | 4,735 | 6,265 | 5,148 | -24% | %8- | 5,829 | -19% | 6,946 | -32% |
| Non-op | 1,357 | 1,890 | 951 | 1,020 | 1,183 | ||||
| PBT | 6,092 | 8,155 | 6,099 | -25% | 0% | 6,849 | -11% | 8,129 | -25% |
| Net Income | 5,182 | 7,080 | 4,670 | -27% | 11% | 5,751 | -10% | 6,723 | -23% |
| EPS(NT$) | 39.62 | 54.13 | 35.70 | -27% | 11% | 43.97 | -10% | 51.40 | -23% |
| GM | 42.2% | 47.2% | 49.4% | -5.0 ppt | -7.2ppt | 48.6% | -6.4ppt | 50.1% | -7.9ppt |
| OPEXratio | -12.0% | -11.8% | -11.7% | -0.1ppt | -0.2ppt | -12.2% | 0.2ppt | -11.9% | -0.0ppt |
| OPM | 30.3% | 35.4% | 37.7% | -5.2ppt | -7.4ppt | 36.4% | -6.1ppt | 38.2% | -7.9ppt |
| NM | 33.1% | 40.1% | 34.2% | -6.9ppt | -1.1ppt | 35.9% | -2.8ppt | 36.9% | -3.8ppt |
© 2026 Citigroup Inc. No redistribution without Citigroup's written permission.
Source: Citi Research, Bloomberg
We view customer acceptance and manufacturing differentiation positively, despite near-term earnings visibility remains constrained by smartphone demand at least into 1H27. We thus maintain our Buy rating with TP NT$8,500 unchanged, implying 33x of our 2027/28 EPS projection from 30x previously thanks to its better visibility on FAU progress.
Figure 2. Largan - Estimates Revisions
| (NT$mn) | 2026E - New | 2026E - Old | 2026E - Chg. | 2027E - New | 2027E - Old | 2027E - Chg. | 2028E - New | 2028E - Old | 2028E - Chg. |
|---|---|---|---|---|---|---|---|---|---|
| Sales | 61,099 | 62,461 | -2% | 77,607 | 95,009 | -18% | 163,572 | 156,848 | 4% |
| Gross profit | 27,591 | 30,753 | -10% | 32,950 | 46,156 | -29% | 74,819 | 73,629 | 2% |
| Opex | (7,212) | (7,407) | -3% | (10,428) | (12,763) | -18% | (21,977) | (21,077) | 4% |
| Operating profit | 20,379 | 23,346 | -13% | 22,522 | 33,393 | -33% | 52,842 | 52,552 | 1% |
| Pre-tax profit | 25,183 | 27,813 | -9% | 26,602 | 37,473 | -29% | 56,922 | 56,632 | 1% |
| Net income | 20,449 | 22,444 | -9% | 21,410 | 30,213 | -29% | 45,921 | 45,639 | 1% |
| EPS (NT$) | 155.5 | 168.2 | -8% | 163.7 | 226.4 | -28% | 351.1 | 341.9 | 3% |
| Gross margin | 45.2 | 49.2 | -4.1ppts | 42.5 | 48.6 | -6.1ppts | 45.7 | 46.9 | -1.2ppts |
| Opex ratio | (11.8) | (11.9) | -0.1ppts | (13.4) | (13.4) | 0.0ppts | (13.4) | (13.4) | 0.0ppts |
| Operating margin | 33.4 | 37.4 | -4.0ppts | 29.0 | 35.1 | -6.1ppts | 32.3 | 33.5 | -1.2ppts |
| Net margin | 33.5 | 35.9 | -2.5ppts | 27.6 | 31.8 | -4.2ppts | 28.1 | 29.1 | -1.0ppts |
© 2026 Citigroup Inc. No redistribution without Citigroup's written permission.
Source: Citi Research
© 2026 Citigroup Inc. No redistribution without Citigroup's written permission.
Source: Citi Research, company data
Figure 5. Largan - Forecast Summary
| NT$mn | 1Q25 | 2Q25 | 3Q25 | 4Q25 | 1Q26 | 2Q26 | 3Q26 | 4Q26E | 1Q27E | 2Q27E | 3Q27E | 4Q27E | 2025 | 2026E | 2027E | 2028E |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | 14,579 | 11,673 | 17,677 | 17,219 | 15,544 | 13,665 | 15,651 | 16,239 | 13,628 | 11,251 | 21,613 | 31,114 | 61,148 | 61,099 | 77,607 | 163,572 |
| Gross profit | 7,965 | 6,260 | 8,352 | 8,260 | 7,680 | 6,753 | 6,607 | 6,552 | 5,718 | 4,663 | 9,010 | 13,560 | 30,837 | 27,591 | 32,950 | 74,819 |
| OPEX | 1,878 | 1,381 | 2,088 | 1,932 | 1,867 | 1,605 | 1,872 | 1,868 | 1,867 | 1,508 | 2,853 | 4,200 | 7,279 | 7,212 | 10,428 | 21,977 |
| Operating profit | 6,086 | 4,879 | 6,265 | 6,329 | 5,812 | 5,148 | 4,735 | 4,684 | 3,851 | 3,155 | 6,157 | 9,359 | 23,558 | 20,379 | 22,522 | 52,842 |
| Total Non-OP | 1,630 | (3,085) | 1,890 | 1,907 | 1,476 | 951 | 1,357 | 1,020 | 1,020 | 1,020 | 1,020 | 1,020 | 2,342 | 4,804 | 4,080 | 4,080 |
| Pre-tax profit | 7,716 | 1,794 | 8,155 | 8,236 | 7,288 | 6,099 | 6,092 | 5,704 | 4,871 | 4,175 | 10,379 | 25,900 | 25,183 | 26,602 | 56,922 | |
| Income tax | 1,173 | 738 | 996 | 1,434 | 1,112 | 1,373 | 910 | 1,263 | 899 | 845 | 1,150 | 2,298 | 4,340 | 4,658 | 5,192 | 11,001 |
| Net profit | 6,443 | 1,032 | 7,080 | 6,720 | 6,123 | 4,702 | 5,182 | 4,441 | 3,972 | 3,329 | 6,027 | 8,082 | 21,275 | 20,449 | 21,410 | 45,921 |
| EPS | 48.3 | 7.7 | 53.0 | 50.3 | 45.9 | 35.9 | 39.6 | 34.0 | 30.4 | 25.5 | 46.1 | 61.8 | 159.4 | 155.5 | 163.7 | 351.1 |
| Margins (%) | ||||||||||||||||
| Gross profit | 54.6 | 53.6 | 47.2 | 48.0 | 49.4 | 49.4 | 42.2 | 40.3 | 42.0 | 41.4 | 41.7 | 43.6 | 50.4 | 45.2 | 42.5 | 45.7 |
| OPEX to Sales Ratio | 12.9 | 11.8 | 11.8 | 11.2 | 12.0 | 11.7 | 12.0 | 11.5 | 13.7 | 13.4 | 13.2 | 13.5 | 11.9 | 11.8 | 13.4 | 13.4 |
| Operating profit | 41.7 | 41.8 | 35.4 | 36.8 | 37.4 | 37.7 | 30.3 | 28.8 | 28.3 | 28.0 | 28.5 | 30.1 | 38.5 | 33.4 | 29.0 | 32.3 |
| Total Non-OP | 11.2 | (26.4) | 10.7 | 11.1 | 9.5 | 7.0 | 8.7 | 6.3 | 7.5 | 9.1 | 4.7 | 3.3 | 3.8 | 7.9 | 5.3 | 2.5 |
| Pre-tax profit | 52.9 | 15.4 | 46.1 | 47.8 | 46.9 | 44.6 | 38.9 | 35.1 | 35.7 | 37.1 | 33.2 | 33.4 | 42.4 | 41.2 | 34.3 | 34.8 |
| Net profit | 44.2 | 8.8 | 40.1 | 39.0 | 39.4 | 34.4 | 33.1 | 27.3 | 29.1 | 29.6 | 27.9 | 26.0 | 34.8 | 33.5 | 27.6 | 28.1 |
| Y/Y (%) | ||||||||||||||||
| Net sales | 28.9 | 6.3 | (6.7) | (5.4) | 6.6 | 17.1 | (11.5) | (5.7) | (12.3) | (17.7) | 38.1 | 91.6 | 2.8 | (0.1) | 27.0 | 110.8 |
| Gross profit | 43.2 | 17.8 | (12.2) | (23.6) | (3.6) | 7.9 | (20.9) | (20.7) | (25.5) | (31.0) | 36.4 | 107.0 | (1.2) | (10.5) | 19.4 | 127.1 |
| Operating profit | 53.7 | 25.4 | (19.7) | (24.5) | (4.5) | 5.5 | (24.4) | (26.0) | (33.7) | (38.7) | 30.0 | 99.8 | (2.0) | (13.5) | 10.5 | 134.6 |
| Pre-tax profit | 3.9 | (69.1) | 3.9 | (25.7) | (5.6) | 240.0 | (25.3) | (30.7) | (33.2) | (31.5) | 17.8 | 82.0 | (19.5) | (2.8) | 5.6 | 114.0 |
| Net profit | 5.4 | (77.1) | 6.8 | (22.5) | (5.0) | 355.6 | (26.8) | (33.9) | (35.1) | (29.2) | 16.3 | 82.0 | (17.9) | (3.9) | 4.7 | 114.5 |
| Q/Q(%) | ||||||||||||||||
| Net sales | (1*.) | (19.) | 51.4 | (2.6) | (9.7) | (12.1) | 14.5 | 3.8 | (16.1) | (17.4) | 92.1 | 44.0 | ||||
| Gross profit | (26.4) | (21.4) | 33.4 | (1.1) | (7.0) | (12.1) | (2.2) | (0.8) | (12.7) | (18.5) | 93.2 | 50.5 | ||||
| Operating profit | (27.4) | (19.8) | 28.4 | 1.0 | (8.2) | (11.4) | (8.0) | (1.1) | (17.8) | (18.1) | 95.1 | 52.0 | ||||
| Pre-tax profit | (30.4) | (76.8) | 354.6 | 1.0 | (11.5) | (16.3) | (0.1) | (6.4) | (14.6) | (14.3) | 71.9 | 44.6 | ||||
| Net profit | (25.7) | (84.0) | 586.0 | (5.1) | (8.9) | (23.2) | 10.2 | (14.3) | (10.6) | (16.2) | 81.0 | 34.1 |
Source: Citi Research, company data
© 2026 Citigroup Inc. No redistribution without Citigroup's written permission. Source: Citi Research, company data ## Adding Upside 90-Day Short-Term View on Largan Precision (3008.TW)
Direction:
Duration:
Upside
Within 90 Days
Category:
Thematic driven
We see management's upbeat outlook on its FA/FAU business should support Largan's share price performance in the coming months.
Bull/Bear: Largan Precision (3008.TW)
Spread 51pp
Current Price and expected returns (upside/downside) as of 08 Oct 2026
BULL Assumptions
- Higher than expected UTR or better than expected product mix
- Winning significant shares in lens market
- Based on 35x PER
BASE Assumptions
- Overall GM >45% in 2026-28E
- Stable share in lens market with steady lens upgrade trend
BEAR Assumptions
- Lower than expected UTR or worse than expected product mix
- Losing significant shares in lens market
- Based on 23x PER
Largan Precision
Company description
Largan is a plastic/glass/hybrid lens supplier in Taiwan with end-applications including phone cameras, DSCs, MFPs, and tablets. Its new development into FAU business should server as a long term growth opportunity.
Investment strategy
We rate Largan a Buy as we expect its core iPhone business to remain resilient and its co-packaged optics (CPO) development to provide strong upside potential in the longer term. We believe Largan could be a long-term winner in the lens market driven by: 1) its technology leadership; 2) intellectual property (IP) protection; and 3) higher yield vs. competitors. In the longer term, we believe spec migration could keep Largan ahead of competitors.
Valuation
Our target price of NT$8,500 for Largan shares is based on 33x 2027/28E EPS. We are using 2027/28E EPS average as we see new Fiber Array + PMLA revenue to kick in from next year. Our 33x PER is higher than its historical 5year PER range, which we think is justified by its better order visibility proven by its recent strong capacity expansion plan, and we expect its CPO business engagement should provide a strong long-term growth opportunity.
Risks
Key downside risks include: 1) weaker smartphone demand or replacement demand, and in particular, demand headwinds for certain key clients; 2) longer learning curve and slower ramp of the yield rate; 3) slower spec migration; and 4) slower development in CPO business. Any of these risk factors could cause the shares to deviate from our target price.
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