20160411-法国巴黎银行-舜宇光学科技-02382.HK-Improving_product_mix_11页_512kb

Summary of SUNNY OPTICAL TECHNOLOGY (2382 HK)

Core Content

Sunny Optical Technology is a leading Chinese manufacturer of optical components and products, with a significant presence in the smartphone lens and camera module markets. The company is also a major player in the vehicle lens market and has potential for growth in auto and IoT applications.

Main Points

• Handset Lens Shipments:

  • Reached 69.8 million units in 1Q16, showing a 16% decline quarter-on-quarter but a 33% increase year-on-year.
  • Expected to grow by 40% year-on-year in 2016, following a 152% growth in 2015, driven by share gains in China and product mix improvements to higher-end 8MP/13MP resolution.
  • Margins are expected to improve due to increased shipments and higher-end product mix.

• Camera Module Shipments:

  • Reached 43.6 million units in 1Q16, with a 28% decline quarter-on-quarter and 18% decline year-on-year due to product transition to higher-resolution.
  • Expected to benefit from the dual-camera boom in China, particularly as the main supplier for Huawei.
  • Penetration of dual-cam in the global market is expected to be around 5%, but Sunny is positioned to gain from the early mover advantage.
  • Sales and ASP are expected to resume momentum in 2Q16 and 2H16.

• Long-Term Growth Opportunities:

  • Positive outlook on auto applications, especially with increasing ADAS penetration and tighter safety regulations.
  • Potential for IoT applications, including VR, 360 cameras, and machine vision, which could provide long-term growth catalysts.

• Investment Rating and Target Price:

  • Reiterated "Buy" rating with an updated target price of HKD26.40 (up from HKD22.00), based on 20x of average 2016/2017 EPS estimates.
  • The target price reflects improved earnings growth, margin expansion, and long-term growth potential in non-smartphone segments.

• Key Financial Metrics:

  • Revenue: Expected to grow from RMB10,696 million in 2015 to RMB16,402 million in 2018.
  • Net Profit: Projected to increase from RMB762 million in 2015 to RMB1,707 million in 2018.
  • EPS Growth: Expected to grow from RMB0.71 in 2015 to RMB1.59 in 2018.
  • Recurring P/E: Expected to decrease from 28.3x in 2015 to 12.6x in 2018.
  • EV/EBITDA: Expected to decline from 14.4x in 2015 to 5.9x in 2018.
  • Net Debt/Equity: Expected to decrease from -29.4% in 2015 to -68.8% in 2018.
  • ROE: Expected to increase from 20.5% in 2015 to 24.1% in 2018.

Key Information

• Market Position:
  • Global No.1 vehicle lens supplier in terms of volume.
  • Leading player in China's smartphone camera module market.
• Major Customers: Huawei, Lenovo, Oppo, Ginoee, and BBK.
• Key Executives:
  • Liaoning Ye (Chairman, joined in 2012, age 50)
  • Yang Sun (CEO, joined in 2012, age 43)
  • Kewu Dong (Vice President, joined in 2012, age 47)
• Share Price Performance:
  • 12-month return: 36.7% (relative to MSCI Hong Kong).
  • 12-month high/low: HKD24.25 / HKD12.08.
• Market Cap: USD3,394 million.
• Key Risks:
  • Unexpected market share losses in vehicle lens shipments.
  • Weaker-than-expected shipments in camera modules and lenses, especially in higher megapixel segments.
  • Unexpected decline in ASP and margins.

Catalysts for Growth

• Continuous improvement in product mix for camera modules.
• Consistent market share gains in handset and vehicle lens segments.
• Margin expansion and solid earnings growth.
• Long-term growth in auto and IoT applications, including VR, 360 cameras, and machine vision.

Earnings Sensitivity

• Shipment Growth Impact: A 2% increase or decrease in shipment growth would lead to a 1.3% or 1.0% change in EPS, respectively.
• OPM Impact: A 2% change in OPM would lead to an 11.1% or 9.5% change in EPS.

Valuation Comparison

• Sunny Optical has a lower P/E ratio compared to peers like AAC Tech and Largan, but higher than some others like MediaTek.
• The company has a strong growth trajectory, with a 35% CAGR in earnings from 2015 to 2017.
• The target P/E of 20x reflects its improved earnings growth and long-term potential.

Conclusion

Sunny Optical Technology is positioned for continued growth in both smartphone and non-smartphone segments, with a strong focus on improving product mix, gaining market share, and leveraging its early mover advantage in dual-camera technology. The updated Buy rating and target price reflect confidence in its future performance and long-term growth prospects.