Bernstein upgrades Largan to Outperform and raises target price to NT$5,150

Overview

This is a Bernstein rating upgrade report on Largan Precision Co Ltd, focusing on the opportunity for a consumer electronics optics manufacturer to enter the communication optics market, especially the CPO/NPO optical components market. The report argues that AI data center interconnect demand is driving volume growth in 800G, 1.6T optical modules and CPO optical engines, while rising value content in components such as lenses, prisms, optical isolators, and filters creates the conditions for Largan to expand from a leading smartphone lens maker into communication optics.

Core views

The core view of the report is that Largan was previously rated Market-Perform due to its high concentration of smartphone revenue; however, communication optics provides a new structural TAM, and the requirements of CPO/NPO for high-precision lenses, prisms, FAU, and multilayer fiber stacking capabilities are highly synergistic with Largan's existing consumer electronics optics capabilities. Bernstein expects Largan's 2025-28E revenue/EPS CAGR to reach 9%/15%, with 2028 EPS 25% above market consensus, and therefore raises the P/E multiple from 14x to 23x and lifts the target price to NT$5,150.

Analysis framework

The report first breaks down the optical component value content in 800G DR, 800G FR, and 1.6T CPO, then compares the technical roles and supply landscape of key components such as lenses, prisms, isolators, and filters. It subsequently benchmarks Largan against companies including Sunny Optical, Genius Electronic Optical, Lante Optics, Crystal-Optech, FocusLight, DOTI Micro, Optowide, and CASTECH, and finally incorporates CPO revenue contribution, market share, EPS, and valuation multiples into Largan's target price model.

Methodology notes

• Valuation methodsP/E multiple valuation

  P/E valuation

  Bernstein uses a 23x P/E multiple on Largan's average 2027-28 forward EPS of NT$224 to derive a target price of NT$5,150; previously it used a 14x P/E and a target price of NT$2,600.

• industry_analysisBOM content sizing

  Optical component value content estimation

  The report estimates that optical components account for about 11% of BOM in 800G DR optical modules, about 16% in 800G FR due to the use of filters, and that optical component value content in 1.6T CPO optical engines exceeds US$45.

• competitive_analysissupplier landscape comparison

  Supplier landscape comparison

  The report divides optical component suppliers into downstream consumer electronics manufacturers and upstream optical materials/component makers, and compares their positioning in lenses, prisms, filters, isolators, and CPO sampling validation.

Asset mapping & comparison

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

• Largan Precision Co Ltd

  Core covered company, rating upgraded to Outperform

  Strengths

  Strong capabilities in precision glass molding, optical design, process IP, automation, and tooling; lens and prism capabilities are transferable to CPO/NPO; product alignment precision is below 0.3 μm, better than the 0.5-0.8 μm peers cited in the report.

  Weaknesses

  Current revenue still relies heavily on consumer electronics and Apple, non-smartphone business remains a relatively low proportion, and CPO is still at the customer evaluation and pre-mass-production stage.

  Comparison

  Compared with many upstream optical material companies, Largan has stronger revenue scale and consumer electronics precision manufacturing experience; compared with Sunny Optical, Largan is more focused on components such as lenses and prisms rather than module assembly.

  Risks

  CPO/NPO adoption around 2028 is slower than expected, product certification failure, a weaker-than-expected iPhone 18 replacement cycle, or loss of share with major customers.

• Sunny Optical Technology Group Co Ltd

  Peer comparison company; the report maintains Outperform and assigns a HK$76 target price

  Strengths

  A global leader in smartphone cameras and modules, with an established optical communication team and a CTO with an optical engineering background to drive communication optics.

  Weaknesses

  More than half of revenue comes from camera module assembly, where ASP is higher but gross margin is lower than for pure component companies; communication optics is still in the early stage of product development and customer engagement.

  Comparison

  Sunny Optical has greater scale and vertical integration capabilities, but Largan is more closely aligned with the CPO investment theme in terms of high-precision lenses, prisms, and component-margin characteristics.

  Risks

  Margin pressure from rising memory prices, a weaker-than-expected Android smartphone market, and slower-than-expected ADAS penetration and AR/VR adoption.

• CPO/NPO optical components

  Largan's new growth market

  Strengths

  AI data center interconnects are driving demand growth for 800G/1.6T optical modules and CPO optical engines, while silicon lenses, glass lenses, prisms, FAU, isolators, and filters are increasing optical value content.

  Weaknesses

  The industry is still in the stage of qualification, sampling, and architecture migration, and there remains uncertainty over different technology paths and customer adoption timing.

  Comparison

  Compared with traditional smartphone optics, CPO/NPO relies more on high-precision manufacturing, optoelectronic packaging coordination, and long-term specification upgrades; compared with pluggable optical modules, CPO optical engines have higher per-unit optical content value.

  Risks

  Delayed CPO mass production timing, customer certification failure, competitive entry causing share and pricing pressure, and technology route changes affecting component demand.

Key data

• Largan target priceNT$5,150Raised from the previous NT$2,600, with the rating upgraded to Outperform.
• Valuation multiple23x P/EApplied to average 2027-28 EPS of NT$224; the previous multiple was 14x.
• 2025-28E revenue/EPS CAGR9% / 15%Reflects smartphone business recovery and incremental CPO optics contribution in 2028.
• 2028 CPO revenue forecastNT$4BCorresponds to Largan's 15% share of the CPO optics market, about 6% of total 2026E revenue.
• 2030 CPO revenue potentialPotentially five times larger than 2028Driven by an increase in the number of optical engines and upgrades in optical component specifications.
• 800G DR optical module optical component value contentUS$25+Accounts for about 10%-15% of BOM; the main report estimates about 11% for 800G DR.
• 1.6T CPO optical engine optical component value contentUS$45+CPO uses silicon lenses, prisms, FAU, and ELS-related components, lifting per-unit value content.
• Largan communication optics pilot production lineExpected to be ready in September 2026For customer evaluation; mass production is expected to require another six months to one year.

Impact & implications

If the report's view materializes, Largan's investment narrative will shift from being highly dependent on the smartphone lens cycle to being jointly driven by smartphone upgrades and AI data center communication optics. Greater adoption of CPO/NPO, optical component specification upgrades, and closer cooperation with leading foundry ecosystems such as TSMC could support a long-term valuation re-rating for Largan; however, valuation volatility may also be high in the near term during the investment and validation phase.

Risks

• CPO/NPO adoption by 2028 is slower than expected, or Largan fails product certification in CPO/NPO.
• The iPhone 18 replacement cycle is weaker than expected, dragging on Largan's core smartphone optics business.
• Competition among major customers intensifies, causing greater-than-expected share loss for Largan.
• Valuation volatility during the CPO investment period may be significant; if revenue realization is slower than market expectations, the valuation re-rating may reverse.
• Uncertainty in ramp-up of new communication optics production lines, product mix, and yield may affect gross margin improvement.

What to watch

• Whether Largan's communication optics pilot production line will be ready on schedule in September 2026 and enter customer evaluation.
• The timeline from sampling and qualification to mass production for CPO/NPO products, especially whether they can begin contributing revenue in 2027-28.
• Progress in customer validation of Largan's capabilities in FAU, lenses, prisms, and multilayer fiber stacking.
• The volume ramp of 800G and 1.6T optical modules and CPO switches, and changes in the value content of optical components within BOM.
• Product progress and share changes in communication optics among competitors such as Sunny Optical, Lante, FocusLight, DOTI Micro, Optowide, and CASTECH.
• Whether Largan's non-smartphone revenue share can rise from about 9% to about 15% by 2028.