Nomura maintains Buy on Largan Precision and raises target price to TWD4,310 on CPO component automation potential

Overview

This report focuses on Largan Precision's potential breakthrough in CPO components. Nomura believes that the PMLA and FA showcased by the company at COMPUTEX 2026 validate its capabilities in optical design, precision manufacturing, metrology, high-precision assembly, and full automation, which may help the company extend from its traditional mobile camera lens business into the AI CPO supply chain.

Core views

The core view is that Largan Precision's CPO-related components have differentiated technological advantages: PMLA integrates prisms with collimating microlens arrays, which can reduce efficiency loss and assembly yield loss; FA demonstrated +/-0.3um alignment precision and a multi-layer fiber stacking design, helping reduce size and improve design flexibility. Nomura is also positive on a stronger 2026-27F iPhone shipment outlook, and therefore raised earnings forecasts and used a higher target P/E multiple to reflect the diversification potential in AI CPO.

Analysis framework

The report analyzes based on observations from the technology showcase, judgment on CPO mass-production bottlenecks, assessment of the company's optical manufacturing capabilities, expectations for mobile end-demand, and valuation multiple adjustments. For valuation, it adopts the target P/E method, deriving a target price of TWD4,310 based on 20x 2027F EPS of TWD215.5.

Methodology notes

• Valuation methodsTarget P/E method

  Determine the target price based on 20x 2027F EPS

  Nomura sets the target price at TWD4,310 based on 20x 2027F EPS of TWD215.5; the target P/E was raised from 18x to 20x to reflect the potential diversification value of Largan Precision entering the AI CPO field.

• Technological competitivenessAssessment of CPO component mass-production capability

  Full automation of FA/FAU is a key bottleneck for CPO scaling

  The report believes full automation of FA and FAU production and testing processes is a key condition for CPO optical engines to move from the current small-scale market to a mass market; Largan Precision's high-precision assembly and automation capabilities are the main highlights.

Asset mapping & comparison

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

• Largan Precision / Largan Precision (3008.TW)

  Research target; Taiwan's leading mobile lens maker and a potential AI CPO component supplier.

  Strengths

  Possesses optical design, manufacturing, metrology, high-precision assembly, cleanroom resources, and financial strength; the PMLA and FA solutions show potential to reduce loss, shrink size, and enable fully automated production.

  Weaknesses

  The current CPO optical engine market is still at a niche stage, and mass-production conversion depends on FA/FAU automation, customer deployment pace, and supply chain division of labor; the core mobile lens business remains affected by iPhone and Android demand.

  Comparison

  Compared with metalens solutions based on diffractive optics, PMLA's geometric optics path theoretically has lower insertion loss; compared with FA solutions that insert through glass holes, Largan Precision's solution is smaller, has lower risk of glass cracking, and may support more than the mainstream two-layer fiber stacking.

  Risks

  Key risks include weaker-than-expected handset sales, ASP and margin erosion, slower specification upgrades, intensifying competition, loss of market share, and production yield falling short of expectations.

Key data

• RatingBuyRating maintained.
• Target priceTWD4,310Raised from TWD3,290.
• Closing priceTWD3,535Disclosed on the report cover page.
• Expected upsideabout 22%Calculated based on the target price and closing price.
• 2027F EPSTWD215.5Basis for target price valuation.
• Target P/E20xRaised from 18x previously, at the high end of the company's historical trading range of 10-25x since 2015.
• Current valuation16x 2027F P/EThe report states that Largan Precision is currently trading at 16x 2027F P/E.
• FA precision+/-0.3umThe 40-channel FA showcased at COMPUTEX achieved sub-micron alignment precision.
• Earnings forecast revision2026F +4.9%; 2027F +2.2%Mainly due to expectations of stronger 2026-27F iPhone shipments.
• ESG data90%+ water recycling; 1% annual electricity-saving targetThe company focuses on resource recycling and participates in ISO14064 greenhouse gas emissions reporting.

Impact & implications

If Largan Precision can introduce its FA and FAU automation capabilities into customers' CPO deployments, its valuation narrative may expand from the mobile lens cycle to AI optical interconnect growth opportunities. The report's upward revision to target P/E suggests the market may be willing to assign a higher valuation for CPO diversification, but this rerating still depends on customer supply chain decisions, mass-production yield, and CPO market ramp-up.

Risks

• iPhone and Android handset sales are weaker than expected.
• Inventory correction among Chinese customers is greater than expected.
• ASP or margin erosion is higher than expected.
• Product specification upgrades are slower than expected.
• Intensifying competition leads to loss of market share.
• Production yield is worse than expected.
• CPO customer deployment and the progress of fully automated FA/FAU mass production are slower than expected.

What to watch

• Whether customers include Largan Precision in the supply chain related to CPO FA, PMLA, or FAU.
• Whether FA/FAU production and testing processes can achieve stable full automation and high yield.
• Whether 2026-27F iPhone shipments validate the upward revision assumptions.
• Whether the AI CPO optical engine market can expand from small-scale demand to a mass market.
• Whether Largan Precision's target P/E can remain at the high end of the historical range.
• Changes in mobile lens ASP, margins, and the competitive landscape.