Largan Precision Earnings: Still the Main Beneficiary of Camera Upgrades in iPhones

Despite sluggish first-quarter results, we kept our fair value estimate for narrow-moat Largan Precision 3008 unchanged at TWD 2,600. While we were somewhat disappointed by the extent of the iPhone demand weakness, we believe our 2023 forecasts remain achievable given the adoption of periscope lenses in iPhone 15 Pros and the plausible earlier recovery of Android smartphones (the latter may serve as a catalyst for Sunny Optical’s shares). Over the long term, Largan remains one of the key beneficiaries of smartphone camera upgrades as the structural demand for improving image and video quality is unchanged, as with our fair value estimate.

We are still confident that Largan will greatly benefit from Apple’s decision to upgrade its telephoto cameras to periscope lenses in the iPhone 15 Pro models. If the recent news that Apple decided to drop the solid-state button design from this year’s model is true, we view it as a blessing in disguise, as it frees up the budget for upgrades to critical components like cameras. A telephoto camera using periscope lens technology is at the top of the specification upgrade list for iPhones, as the ultra-zoom feature has proven to be an important factor attracting consumers to flagship devices of competing brands like Samsung. We think Largan’s position as the leading cutting-edge lens supplier means it should supply most (about 80%) of iPhone’s periscope lenses in 2023 before having to share orders with Sunny as volume increases. We estimate periscope lenses’ average selling price to be more than double that of legacy telephoto lenses and to account for 12% of total revenue in 2023 and 24% in 2024 by replacing legacy lenses.