Largan’s Resiliency Continues to be Overlooked, but Sunny Should Outperform in the Short Run

We fine-tuned Largan’s earnings forecasts and maintained our fair value estimate of TWD 2,600. We retain our long-term expectation of a modest gross margin recovery to 58.8% in 2027 from 54.7% in 2022 due to the company’s ability to maintain its leading position in supplying advanced smartphone camera lenses. We think its strategy of prioritizing cutting-edge smartphone lenses should prevail, ceding some lower-value shipments of iPhone lenses but continuing to capture the largest share in dollar amount. As the primary supplier of main rear lenses and Pro lenses, we posit Largan can maintain high profitability. We slightly lifted our gross margin assumption while cutting our revenue growth forecasts, leaving our fair value estimate unchanged. We also maintain our view that Largan’s shares are undervalued as the market is overlooking its long-term resiliency. Meanwhile, we think that Android-heavy peers like Sunny Optical may outperform Largan in the short run as we expect China’s consumption to rebound after the reopening following a prolonged Android weakness. Sunny should announce its full-year results later in March, and we expect results to be unsurprisingly lackluster but guiding toward an improving smartphone outlook.