Frequent buybacks fail to lift the stock price, revealing the logic behind the divergence between COWELL (01415) performance and valuation.

Title context: Frequent buybacks fail to lift the stock price, revealing the logic behind the divergence between COWELL (01415) performance and valuation. Text: In July, it announced a buyback plan of up to HK$320 million, followed by intensive buybacks in September, yet the stock price fell instead of rising. Has COWELL (01415), which first rose and then fell, been wrongly punished by the market? It is understood that COWELL authorized and approved a share buyback plan of up to HK$320 million on July 13, began purchases on August 19, and had cumulatively repurchased 4.61 million shares by October 2, with the buyback amount exceeding HK$100 million. Boosted by the buybacks, the company's stock price rose 23% in August, but began to decline in September, falling more than 11%. Its market value has retreated 18% this year, and since September 2025 it has nearly halved from its high. However, the company's performance has grown strongly, with revenue and profit continuing double-digit growth in the first half of 2026. On one side is the tug-of-war of buying more while the price keeps falling, with buybacks unable to stop the decline in valuation; on the other side is the report card of double growth in interim revenue and profit. Which side does COWELL's valuation scale actually lean toward? Double growth amid headwinds, low profit margin but high ROE COWELL is a precision optical module supplier, with customers covering smartphones, multimedia tablets, intelligent driving and other mobile terminal device sectors. It is a core supplier to Apple, and its performance is highly dependent on Apple. In the first half of this year, the industry as a whole was still in a correction trend, but Apple's sales grew against the trend. According to IDC data, global smartphone shipments overall declined, falling 4.1% in the first quarter and 6.7% in the second quarter, while Apple's shipments grew 3.3% and 15.3% respectively, with global market share reaching 20%, firmly ranking second, among which the Chinese market made a core contribution, growing as much as 24.9% in Q2. Benefiting from Apple's performance growth, COWELL likewise delivered double growth against the headwinds, achieving revenue of US$1.605 billion in the first half, up 18% year on year, and shareholder net profit of approximately US$90 million, up 33.3% year on year. In the first half, COWELL's largest customer (Apple) contributed revenue of US$1.593 billion, up 19.4% year on year, with its revenue share rising to 99.3%, among which the Chinese market contributed the most, generating revenue of US$1.48 billion, up 20.3% year on year, with its revenue share rising to 92.2%. Over a longer period, under this high dependence, COWELL is highly sensitive to Apple's performance cycle. From 2023 to 2025, both revenue and profit maintained a high-growth trend, with revenue compound growth of 94.6% and shareholder net profit compound growth of 105.6%. Image source: Company financial report Profit growth outpacing revenue was mainly due to the continued release of operating leverage. COWELL's contract manufacturing nature means its profit margin will not be too high, but shareholder returns are not low. In the first half, the gross profit margin was 11.22%, relatively stable compared with previous years, but period expenses, including selling, administrative and financing expense ratios, were all optimized. In the first half, the period expense ratio was 4.99%, down 0.9 percentage points year on year, the shareholder net margin was 5.6%, up 0.7 percentage points, and annualized ROE reached 22.3%. Has growth expectations, but bottoming-out has not yet ended Apple is COWELL's base, and high dependence is both a risk and a safeguard. The company is deeply involved in multiple new Apple product categories and has growth expectations. In the first half, Apple's sharp sales growth against the trend gave the company strong demand. In Q3, Apple's sales in China continued to grow 0.6%, and in Q4 new products drove continued strong sales, with full-year sales potentially providing the company with robust orders. Moreover, in the medium to long term, Apple is expected to launch foldable phones, 20th-anniversary phones, AI earphones, AI glasses and home Siasun Robot&Automation and other entirely new categories in 2026-2027, also providing growth safeguards for COWELL. High dependence always carries risk. The company is actively opening a second growth curve, laying out MicroLED-related optical technology, exploring innovative application opportunities in optical communications, AR and other fields, and at the same time, relying on its deep accumulation in high-precision optical sensing products, making forward-looking arrangements in the new Siasun Robot&Automation business. In addition, the company closely follows AI development trends, promoting the deep extension of artificial intelligence technology from "product empowerment" to "system empowerment," realizing a dual-drive structure of base business plus new growth curve. However, the new growth curve has not yet taken shape and has not yet driven performance. But one of the company's greatest advantages is its clean finances and abundant cash resources, which allow it to resist cyclical risks and achieve countercyclical expansion as well as new business expansion. As of June 2026, the company had current bank loans of US$134 million and non-current bank loans of US$8 million, totaling US$142 million, accounting for only 9.37% of total assets, while cash equivalents were US$404 million, 2.85 times interest-bearing debt. It is worth noting that Apple is the biggest variable in COWELL's performance growth, but the market value growth trend is not consistent. Over the past three years, Apple's market value has continued to rise, while COWELL has fallen from highs, with fundamentals-driven pricing becoming distorted and entering a technical bear market. After the sharp valuation pullback, the company's PE (TTM) is only 11 times, while the Hong Kong stock mobile phone industry chain PE value is 24 times, far below the industry level. Data source: Relevant trading software Why do COWELL's market value and performance run counter to each other? There are mainly three reasons: First, smartphone shipments continue to decline. Although AI drives growth in high-end phone sales, the structural adjustment has not effectively prevented the industry from entering a recession. Second, the new growth curve has not taken shape and expectations are not high, causing the market trend to remain consistent with mobile phone industry expectations, while sensitivity to Apple's performance is generally limited. Third, even though market value has already fallen sharply, under the long-term bull trend there are still many long-term profit-taking positions, plus the suppression of trapped positions, and hot money is not in the mobile phone sector, causing valuation to continue bottoming out. In order to boost market confidence, the company issued "share buybacks + equity incentives," repurchasing its own shares at a total consideration of no more than HK$320 million, and granting 12.929 million award shares to 181 directors and employees, accounting for 1.49% of issued shares, of which 4 directors accounted for 0.21%. The company's valuation mainly lacks driving factors. Buybacks support the stock price, while equity incentives are highly tied to performance targets. If the new growth curve produces significant results, valuation will also usher in a turning point. From the perspective of brokerage and investment bank views, EB SECURITIES believes that AI drives the optical innovation cycle, COWELL's medium- to long-term growth path is clear, and it is optimistic about the company's continued growth under the mobile phone optical upgrade trend, as well as the huge space for expansion into new blue ocean markets such as AI glasses and Siasun Robot&Automation. A JPMorgan research report said that COWELL benefited from Apple product orders performing better than expected and improvements in yield efficiency, with first-half net profit growth higher than expected. The current stock price is only equivalent to 10 times the forecast price-earnings ratio for 2026, 40% below the historical average. Strong earnings growth is expected to support a valuation re-rating, and the target price was raised to HK$48. Overall, COWELL's performance remains strong, but its valuation has diverged, retreating in the past year to nearly half from its high. This year it issued buybacks and equity incentives to boost confidence. Most investment banks are optimistic and have raised target prices, but this has not changed the downward trend. The three major reasons have caused the company's valuation to be wrongly punished by the market. However, the company's fundamentals are supported, and its dependence on Apple gives it growth expectations. But buybacks are still continuing, the bottoming-out has not yet ended, and the valuation turning point remains to be verified by the next financial report.