EB SECURITIES: Fully introducing AI to drive performance beyond expectations, maintaining a "buy" rating for COWELL (01415).

EB SECURITIES has released a research report stating that COWELL (01415) had strong performance in 2025, which validates the logic of its increased market share in the core customer supply chain. The company achieved revenue of $3.5 billion in 2025, representing a significant year-on-year growth of 40.3%, mainly driven by an increase in orders for core customer rear camera modules. Looking ahead to 2026, as AI accelerates its penetration from the cloud to the end device, there will be higher demand for image and perception capabilities in devices such as smartphones and PCs. As a core optical component supplier, the company will benefit significantly from this trend. EB SECURITIES is optimistic about the company's continued growth in the trend of upgrading mobile optical components, as well as the huge potential for expansion into new blue ocean markets such as AI glasses and Siasun Robot & Automation. EB SECURITIES maintains its forecast of the company's net profit attributable to shareholders for 2026 at $230 million. However, considering the gradual progress in the upgrading of main camera modules for large customers, as well as the company's increased research and development investment to support long-term growth in the 2027-2028 period, they have lowered their forecast for net profit in 2027 to $290 million (previously forecasted at $340 million) and added a forecast for 2028 net profit of $360 million, while maintaining a "Buy" rating on the company. EB SECURITIES' main points include: Events: The company released its 2025 annual performance report. 1) Revenue: Achieved revenue of $3.5 billion in 2025, a significant year-over-year growth of 40.3%, mainly driven by an increase in orders for core customer rear camera modules. 2) Gross margin: Gross margin in 2025 was 10.2%, a slight decrease from 11.7% in 2024, mainly due to product structure adjustments and ongoing price competition pressure. 3) Expenses: Administrative expenses in 2025 increased by 18.0% year-on-year to $128 million, mainly due to an increase in research and development expenses of approximately $28.9 million, reflecting the company's forward-looking investment in future projects and technology upgrades. 4) Net profit: Achieved a net profit attributable to shareholders of $197 million in 2025, a year-over-year increase of 65.4%, with a net profit margin of 5.6%, a 0.8 percentage point increase from 4.8% in 2024, demonstrating significantly improved profitability while achieving high revenue growth. The company actively integrates AI technology, highlighting its competitive advantage in operational efficiency and laying the foundation for continued market share growth. Despite slight fluctuations in gross margin due to changes in product structure, the company's net profit growth rate (yoy +65.4%) far exceeds revenue growth rate (yoy +40.3%), driving steady improvement in net profit margin. This highlights the company's strong cost control and end-to-end operational optimization capabilities during the introduction of new products. This ability to turn technological advantages into profitability is the company's core competitive advantage in precision manufacturing, giving it strategic leverage in securing new orders from core customers. Additionally, in terms of expense control, in the second half of 2025, the company achieved a significant increase in operational efficiency by fully integrating AI into the manufacturing system (covering production, research and development, supply chain, etc.), with the number of employees increasing from 6,728 at the end of June 2025 to 6,854 by the end of the year, an increase of just over 100 people, while achieving revenues of over $2.1 billion in the second half of 2025. 2026 will usher in an AI-driven period of optical innovation, with a clear growth path for the company. Looking ahead to 2026, as AI accelerates its penetration from the cloud to the end device, there will be higher demand for image and perception capabilities in devices such as smartphones and PCs. We believe that: 1) With industry-leading yield and automation capabilities, the company is expected to gain more market share in the rear camera module field it has entered; 2) The company is expected to enter into foldable screen iPhone camera modules in 2026 and enter the iPhone rear camera module race in 2027; 3) The company is poised to become a core supplier of camera modules in Apple's diverse wearable devices (such as TWS headphones with integrated cameras, smart glasses, AR/VR headsets, etc.), with some products expected to start mass production and launch between 2026 and 2027; 4) The company is actively leveraging AI to restructure its research and development and production systems, creating a deep integration model of "data-driven, AI-coordinated, manufacturing-based", building technological barriers to ensure high-quality growth. Profit forecast, valuation, and rating: The company showed strong performance in 2025, confirming its logic of increased market share in the core customer supply chain. We are optimistic about the company's continued growth in the trend of upgrading mobile optical components, as well as the huge potential for expansion into new blue ocean markets such as AI glasses and Siasun Robot & Automation. We maintain our forecast of the company's net profit attributable to shareholders in 2026 at $230 million. However, considering the gradual progress in the upgrading of main camera modules for large customers, as well as the company's increased research and development investment to support long-term growth in the 2027-2028 period, we have lowered our forecast for net profit in 2027 to $290 million (previously forecasted at $340 million) and added a forecast for 2028 net profit of $360 million, while maintaining a "Buy" rating on the company. Risk warning: Single customer structure, global smartphone shipments lower than expected, and technology upgrades falling short of expectations.