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Sunny Optical Summary

Core Content

Sunny Optical is a leading manufacturer of optical and optoelectronic components, primarily serving the mobile phone and digital camera markets. The company has demonstrated strong growth and has several positive developments that support its continued expansion and performance improvement. The report outlines the company's financial guidance, progress in technology, and valuation metrics.

Main Points

• Company Overview:

  • Sunny Optical is a leading integrated optical and optoelectronic components producer.
  • It offers products such as glass/plastic lenses, lens sets, camera modules, and optical instruments.

• Guidance and Performance:

  • Management provided strong guidance for full-year shipments, expecting growth of 15-20% for HCM and 30-35% for HLS and VLS segments.
  • Despite a weak start in 1Q18, the company expects an acceleration in shipment growth from late 1Q18 onwards.

• Technological Advancements:

  • MOB/MOC technologies: These patented technologies are expected to gain traction due to the rising adoption of all-screen designs.
  • Periscope-type dual cam: The company has completed R&D, and its better technological know-how and mass production experience could solidify its lead in this area.
  • 7P plastic HLS: This high-end solution is set to kick off mass production, helping Sunny capture more market share in the higher-end HLS market.
  • Vehicle camera modules: The expansion into this segment is expected to help the company tap into automotive market potentials.

• Valuation and Target Price:

  • The company's target price is HKD175, representing a 10% upside from the current price of HKD160.
  • The new target price is based on a 0.9x PEG valuation on FY17-20F recurring NP CAGR, compared to a previous 0.8x PEG on FY16-19F recurring NP CAGR.
  • The DCF valuation is at HKD179.10, supporting the target price.

• Financial Forecasts:

  • Recurring EPS is expected to grow from CNY1.27 in Dec-16 to CNY6.43 in Dec-20F.
  • Recurring Net Profit is forecasted to increase from CNY1.398bn in Dec-16 to CNY7.052bn in Dec-20F.
  • Revenue Growth: Expected to be 36.6% in FY17, 43.6% in FY18F, and 22.5% in FY19F.

• Valuation Metrics:

  • Recurring P/E: Drops from 101 in Dec-16 to 20 in Dec-20F.
  • P/B: Decreases from 28.9 to 6.2.
  • P/CF: Falls from 78.4 to 20.2.
  • EV/EBITDA: Drops from 46.5 to 15.8.
  • Dividend Yield: Increases from 0.2% to 0.6%.
  • FCF Yield: Rises from 0.7% to 3.6%.

• Share Performance:

  • Market Cap: USD22,347m.
  • Average Daily Turnover: HKD1,088m/USD139m.
  • 52-Week Price Range: HKD53.5 - HKD160.
  • Free Float: 48%.
  • Shares Outstanding: 1,097 million.
  • Estimated Return: 10%.

• Shareholders:

  • Management: 38.6%.
  • JP Morgan Chase & Co.: 7.9%.
  • T. Rowe Price: 5.9%.

Key Information

Financial Highlights

• Revenue: Expected to grow from CNY14.612bn in Dec-16 to CNY44.837bn in Dec-20F.
• Gross Profit: Projected to increase from CNY2.68bn to CNY11.075bn.
• Operating Profit: Anticipated to rise from CNY1.501bn to CNY7.677bn.
• Net Profit (Recurring): Expected to grow from CNY1.398bn to CNY7.052bn.

Key Risks

• Weaker-than-expected smartphone shipments: May impact HCM segment performance.
• Increased competition: In the HCM segment, competition is expected to rise.

Analyst's View

• Analyst: Ken Chui CFA.
• Rating: Buy (Maintained).
• Key Drivers:
  • Market share gains in HCM and HLS segments.
  • Pixel migration and adoption of dual cameras.
  • Increased adoption of vehicle camera modules.

Share Performance

• Absolute Return: 60.0% YTD.
• Relative Return: 54.5% YTD.
• 1-month Return: 21.7%.
• 3-month Return: 58.5%.
• 6-month Return: 23.5%.
• 12-month Return: 181.6%.

Summary Table

Conclusion

Sunny Optical is well-positioned for growth due to its technological advancements, expanding market share in key segments, and strong financial performance. The company's strategic moves into the vehicle camera module market and the continued development of its high-end products are expected to drive future performance. The analyst maintains a Buy rating with a new target price of HKD175, reflecting positive progress and strong growth expectations.