Key insights
- Morgan Stanley highlights Largan Precision and Genius Electronic Optical as top picks in Greater China tech hardware, based on residual income model valuations. Upside drivers include high-end smartphone demand and adoption of new optical technologies, particularly related to Apple's products. Risks include competition and potential delays in Apple's mixed reality product launches. Limited direct impact on US equities, but positive sentiment towards Apple suppliers could provide a slight boost.
Investing.com -- Morgan Stanley has identified leading opportunities in the Greater China technology hardware sector, with optical component manufacturers taking the top positions based on the firm’s residual income model valuations.
The investment bank’s analysis focuses on companies positioned to benefit from high-end smartphone demand and emerging technologies in the optical components space.
Get compilations of analysts’ preferred stocks with InvestingPro
- Largan Precision (3008.TW) - Morgan Stanley’s top pick in the sector uses a residual income model with a cost of equity of 8.5%, projecting a net profit compound annual growth rate of 7% from 2026 to 2036 and a terminal growth rate of 3%.
The firm sees upside potential from stronger-than-expected high-end smartphone demand and faster adoption of 1G6P technology and periscope lens systems.
However, downside risks include intensifying competition that could pressure average selling prices and gross margins, as well as weaker demand for premium smartphone models.
- Genius Electronic Optical Co. Ltd. (3406.TW) - The second-ranked stock in Morgan Stanley’s analysis also employs a residual income model with an 8.5% cost of equity, based on a 3% risk-free rate, 1.0 beta, and 5.5% equity risk premium.
The firm projects a medium-term net profit CAGR of 4% with a 3% terminal growth rate.
Morgan Stanley identifies potential upside from increased market share gains in iPhone components, better-than-expected demand for Apple’s mixed reality products, and stronger virtual reality and mixed reality shipment volumes.
Key risks to the downside include potential delays in Apple’s mixed reality product launches and possible market share losses in iPhone component supply.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.