Largan Precision Enters CPO Track, Bernstein Upgrades Rating to Outperform

Overview

This research report provides a deep analysis of Largan Precision, with the core logic being the company's successful expansion of its precision optical technology from smartphone lenses into the communication optics market required for AI data centers (specifically Co-Packaged Optics, or CPO). Given this new structural growth opportunity, Bernstein has upgraded Largan Precision's rating from "Market Perform" to "Outperform" and significantly raised its target price from NT$2,600 to NT$5,150.

Core views

The communication optics market is experiencing robust growth, driven mainly by demand for 800G/1.6T optical modules and CPO switches. **Technological Synergy and Competitive Advantages:** Largan Precision's experience in designing and manufacturing lenses and prisms for consumer electronics aligns highly with the needs of communication optics. The company possesses a deep moat in precision glass molding, optical design, and process IP, along with internal automation and tooling capabilities that allow it to tackle high-precision manufacturing challenges such as multi-layer fiber arrays (FA). Currently, Largan Precision's alignment accuracy has reached below 0.3 microns, surpassing the industry standard of 0.5-0.8 microns. Furthermore, as the industry evolves from Near-Packaged Optics (NPO) to CPO architecture, Largan Precision, as a Taiwanese supplier, stands to benefit from close collaboration with wafer fabs like TSMC. **Financial Projections and Valuation Re-rating:** The institution expects Largan Precision to capture a 15% share of the CPO optics niche market by 2028, generating approximately NT$4 billion in revenue (about 6% of estimated total revenue for 2026). By 2030, driven by specification upgrades and broader adoption, this revenue segment could quintuple. Overall, the company's revenue and EPS CAGR for 2025-2028 are projected at 9% and 15%, respectively. Due to Largan Precision's entry into a high-growth new track and its 2028 EPS expectations being 25% higher than market consensus, the institution has revised the valuation multiple from 14x PE to 23x PE. Applied to an average EPS of NT$224 for 2027-28, this yields a target price of NT$5,150. **Competitive Landscape:** Approximately 10 suppliers have entered the communication optics field, including downstream consumer electronics manufacturers (such as Largan Precision and Sunny Optical) and upstream material suppliers. Largan Precision's pilot production line is expected to be ready for customer evaluation by September 2026, with mass production requiring another six months to a year.

Analysis framework

The institution adopted a methodology combining bottom-up fundamental analysis with top-down industry trend assessment. First, it broke down the value chain of optical communication components: analyzing the specific cost structure of lenses, prisms, isolators, and filters in 800G DR/FR optical modules and 1.6T CPO (e.g., the optical content value of a 1.6T CPO exceeds $45) to calculate the Total Addressable Market (TAM). Second, it evaluated the company's competitive barriers: by comparing Largan Precision with other optical manufacturers (such as Sunny Optical, Landtech Photonics, etc.) in terms of R&D expenditure, gross margins, and progress in the CPO field (such as sample validation status and capacity planning), it demonstrated Largan Precision's relative advantages in precision manufacturing and yield control. Finally, it conducted segment valuation and re-evaluation: considering the high growth and high margin characteristics of the CPO business, the institution abandoned the old valuation framework relying solely on smartphone business, adopting a higher PE multiple to reflect its attribute shift from a cyclical consumer electronics stock to an AI infrastructure growth stock.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Explosion in demand for optical components driven by iterations in AI data center interconnect technologies

  The report points out that with the surge in AI computing power demand, the demand for 800G/1.6T optical modules and CPO switches is rising rapidly, leading to increases in both volume and unit price for high-precision lenses, prisms, and other optical components. This forms the macro foundation for Largan Precision's second growth curve.

• Valuation MethodPE/PEG valuation

  Upgrading valuation multiples based on new business growth

  When a company enters a high-growth, high-barrier new market (CPO), the market is typically willing to grant a higher Price-to-Earnings (PE) ratio. The report raises Largan Precision's PE from 14x to 23x, reflecting expectations for improved future earnings quality and accelerated growth.

• Competition and Strategy FrameworkMoat / competitive advantage

  Barriers formed by precision manufacturing processes and supply chain synergy

  The report emphasizes Largan Precision's proprietary technology in precision glass molding and internal automation, as well as geographical and industrial chain synergies with TSMC in advanced packaging, which constitute its core competitive advantage distinct from ordinary optical assembly plants.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Largan Precision (3008.TT)

  Direct Beneficiary: Core target, successfully migrating mobile phone lens technology to the CPO field

  Strengths

  Leading precision glass molding technology, strong internal automation capabilities, tight synergy with the TSMC supply chain, and R&D precision superior to peers.

  Weaknesses

  Currently still heavily reliant on smartphone business (approx. 90% of revenue); uncertainty regarding the CPO mass production timeline.

  Comparison

  Compared to Sunny Optical (focused on module assembly with lower gross margins) and upstream material suppliers (smaller scale), Largan Precision combines scale advantages with high-precision manufacturing capabilities.

  Risks

  CPO/NPO adoption slower than expected; iPhone 18 replacement cycle weaker than expected; competition leading to share loss.

Key data

• 2028 CPO Revenue ForecastNT$ 4 BillionExpected to account for 6% of estimated total revenue in 2026, with a 15% market share
• 2025-2028 EPS CAGR15%Benefiting from CPO business ramp-up and gross margin recovery to 53%
• Target Price PE Multiple23xA significant increase from the previous 14x, corresponding to an average EPS of NT$224 for 2027-28
• 1.6T CPO Optical Content ValueUS$ 45+Includes advanced components such as silicon lenses, prisms, and isolators
• Largan Precision R&D Precision< 0.3 μmSuperior to the industry standard of 0.5-0.8 μm

Impact & implications

For Largan Precision, entering the CPO market means摆脱ing over-reliance on the single smartphone market, opening up long-term structural growth space. The high added value of CPO products helps improve the company's overall gross margin. For investors, this marks a restructuring of Largan Precision's valuation logic, shifting from a traditional cyclical consumer electronics component supplier to a key optical component provider for AI computing infrastructure, thus deserving a higher valuation premium.

Risks

• Adoption speed of CPO/NPO technology falls short of expectations by 2028.
• Product certification failures or delays for Largan Precision in the CPO/NPO field.
• Weaker-than-expected replacement cycle for the iPhone 18 series, impacting baseline revenue.
• Intensified market competition leading to unexpected share loss among major customers.

What to watch

• Customer evaluation results for the communication optics pilot production line in September 2026.
• Mass production timeline for CPO products and initial order situations.
• Penetration rates of smartphone lens specification upgrades (such as variable apertures) in iPhone and Android flagship devices.