Raising 2018e/19e EPS by 14%/13% on better SiPh and 25G development. Keyupside surprises in 2Q17 results call are 1) stronger-than-expected demand fromSiPh (silicon photonics) in 2H17 and 2) faster-than-expected development of 25G LDlaser diode). We originally expected the revenue contribution from 25G LD to arrivein 2H18. However, LandMark indicated that it will start small volume shipments in4Q17 which is far ahead of our expectation. We raise our 2018e/19e EPS by14%/13% to factor in higher SiPH and 25G demand (we now forecast 5% salescontribution from 25G in 2018e).    2H17 outlook remains solid. The company guided 3Q17 sales to grow double-digitq-o-q and 4Q17 revenue to trend up from 3Q17, in line with our expectations. Also,the company noted that the new 25G product, which will be commercialized in 4Q17,has high demand in the market and it has been sampled for qualification at clients.    With improved product mix, we forecast 3Q17e/4Q17e GM to improve to 60%/63%vs. GM of 51% in 2Q17).    2Q17 results largely in line with our view albeit below consensus. 2Q17 EPS ofTWD1.62 is largely in line with HSBCe of TWD1.65. 2Q17 GM of 51% is belowHSBCe of 54% due to 1) one-off issue of higher material price, 2) lower loading rateon PD (photo detector), 3) minor impact from FX. OPM of 37% is lower than HSBCeof 41% on 1) lower GM and 2) higher R&D. Nonetheless, 2Q17 EPS is belowconsensus of TWD1.82. If the share price reacts negatively in the near term due tothe miss versus consensus, we think it would further bolster LandMark’s appeal forlong-term investors.    Valuation and risks. We raise our TP to TWD460 from TWD400 based on our DCFmodel, in which we assume 20% mid-term growth, 2% terminal growth, and 7.4%WACC. Our TP equates to 30x 2018e PE and 22x 2019e PE. The stock trades atc26x 2018e PE and c20x 2019e PE (within its historical range of 16-28x since thecompany was listed in 2015). We reiterate our Buy rating based on LandMark’slong-term growth outlook, which has been reinforced by the ramp-up of SiPh and25G LD. Our TP implies c16% upside from current levels. Downside risks:1) slower-than-expected 10G demand, and 2) rising competition from othercompound semis players and the loss of key talent.

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