EB SECURITIES: Maintains a "Buy" rating on COWELL (01415), optimistic about its continued growth amid the trend of optical upgrades in smartphones.

EB SECURITIES published a research report stating their positive outlook on COWELL (01415) for its continuous growth amid the trend of optical upgrades in mobile phones, as well as its substantial potential for expansion into new blue ocean markets such as AI glasses and Siasun Robot & Automation. In light of a slightly better-than-expected net profit margin for the first half of 2026, they raised the net profit forecast for 2026 by 4.2% to $241 million and maintained the net profit forecasts for 2027 and 2028 at $285 million and $355 million, respectively, reasserting the Buy rating for the company. Event: The company released its performance for the first half of 2026. 1) Revenue: For H1 2026, the company achieved revenue of $1.605 billion, an increase of 18.0% year-on-year, mainly driven by increased customer demand and enhanced high-end product shipments optimizing the product mix. 2) Gross profit margin: The gross profit for H1 2026 was approximately $180 million, a year-on-year increase of 15.7%, corresponding to a gross profit margin of 11.2%, slightly down 0.2 percentage points year-on-year. 3) Net profit: The net profit attributable to shareholders for H1 2026 was $89.87 million, a year-on-year increase of 33.3%, with a corresponding net profit margin of 5.6%, up 0.6 percentage points year-on-year, benefiting from improved operational efficiency leading to a decline in sales and administrative expense ratios, resulting in continuous enhancement of profitability. The main points of EB SECURITIES are as follows: The shipment performance from major clients shows strong resilience, and the pressure from storage price increases has not yet transmitted to the camera module sector: In the first half of 2026, the company sold approximately $1.593 billion to its largest client, accounting for about 99.3% of total revenue, fully reflecting the deep integration with core clients. According to IDC data, Apples smartphone shipments in Q1 and Q2 of 2026 increased by 3.3% and 15.3% year-on-year, respectively. The counter-cyclical growth and market share enhancement of core clients collectively drove stable revenue growth for the company in H1 2026. Despite facing rising storage costs, the company is expected to maintain strong resilience in shipments during the peak season of new product releases in the second half of the year, supported by robust pricing power, supply chain management capabilities, and product mix optimization, leading to potential quarter-on-quarter revenue growth. In terms of profitability, the profit margin in the camera module segment is thin, while optical imaging upgrades serve as key differentiating selling points for current smartphones; thus, supply chain security is particularly important, and the pressure from storage price increases has yet to impact the camera module segment. Due to new products ramping up, the gross margin may slightly decline quarter-on-quarter in the second half, but steady profit levels are expected to be maintained. The comprehensive introduction of AI drives continuous improvement in efficiency and profitability: The net profit growth rate for H1 2026 (YoY +33.3%) significantly outperformed revenue growth (YoY +18.0%), enhancing profitability continuously. Through deep integration of "data-driven, AI collaboration, and manufacturing implementation," the company is gradually establishing technological competitive barriers, transitioning from traditional scale expansion to high-quality, high operating leverage growth models. The number of employees increased from 6,854 at the end of 2025 to 7,274 by the end of June 2026, with an addition of about 420 people, yet achieving over $1.6 billion in revenue in H1 2026, continuing to enhance employee efficiency year-on-year. AI drives an optical innovation cycle, and the companys medium to long-term growth path is clear. As AI accelerates its penetration from the cloud to edge devices, smartphone, PC, and other terminal devices are raising higher requirements for imaging and sensory capabilities. As a core supplier of optical components, the company stands to benefit significantly. Judgments: 1) Based on industry-leading yields and automation capabilities, the company is expected to gain more market share in the camera module sector it has already entered; 2) The company is expected to enter the foldable iPhone camera module market in 2026, and by 2028, penetrate the rear main camera segment through new standard model iPhones; 3) The company is likely to become a core supplier of camera modules for Apples diverse wearable devices (such as TWS headphones with integrated cameras, smart glasses, AR/VR headsets, desktop Siasun Robot & Automation, etc.), with some products expected to ramp up production and be launched between 2026 and 2027. Risk warnings: Single customer structure, global smartphone shipments falling short of expectations, technological upgrades not meeting expectations, etc.