20180611-Oriental_Patron-舜宇光学科技-02382.HK-Upbeat_May_shipments_as_downstream_picks_up_6页_1mb

Sunny Optical (2382 HK) Equity Research Summary

Core Content

Sunny Optical is a leading integrated optical component manufacturer, primarily supplying camera modules to top-tier domestic branded handset makers. The company has reported strong shipment growth in May 2018, with HLS, HCM, and VLS shipments increasing by 70.2%, 58.5%, and 20.1% year-over-year, respectively. This growth is attributed to the recovery in downstream demand, particularly due to the launch of new handset models by HOV and Xiaomi in both domestic and international markets. The company's performance is expected to continue in the second half of 2018.

Key Data

• HKEx code: 2382
• 12 Months High: HK$171.60
• 12 Month Low: HK$61.60
• 3M Avg Daily Vol.: 7.93 million
• Issue Share (mn): 1,097.00
• Market Cap (HK$mn): 184,625.10
• Fiscal Year: 12/2017
• Major Shareholder: WANG WENJIAN (38.54%)

Price Performance

• 1-month return: 19.1%
• 3-month return: 17.6%
• 6-month return: 45.8%
• Rel. MSCI CHINA 1-month return: 15.0%
• Rel. MSCI CHINA 3-month return: 16.9%
• Rel. MSCI CHINA 6-month return: 34.3%

Financial Highlights

Key Viewpoints

• Shipment Growth: Sunny Optical's May shipments showed significant growth, particularly in HLS and VLS, with VLS shipments reaching the highest level in 8 months and HLS in 12 months.
• Market Recovery: The company attributes its strong shipment growth to increased market share, but the analysts believe the recovery in the smartphone market is the main driver.
• Competitive Landscape: Largan Precision (3008 TT), a key competitor in the HLS market, also showed strong revenue growth in May, indicating industry-wide recovery.
• Rating and Target Price: The analysts maintain a BUY rating with an unchanged target price of HK$194.00, based on a 35x FY19E P/E ratio.
• Key Drivers for Buy Rating:
  1. Continued market share gains in HLS and VLS with better ASP and margin expansion.
  2. Strong alliance with Huawei in developing 3D sensing products.
  3. Demand pickup from OEMs.

Risks

1. Slower than expected shipment growth.
2. Lower than expected ASP for lens sets.
3. Political risks due to the trade war impacting smartphone components.

Peer Group Comparison

| Company | Ticker | Price (HK$) | Mkt Cap (US$m) | 3-Mth Avg T/O (US$m) | PER Hist (x) | PER FY1 (x) | PER FY2 (x) | EPS YoY% | EPS FY1 YoY% | 3-Yr EPS CAGR (%) | PEG (x) | Div Yld (%) | P/B Hist (x) | P/B FY1 (x) | EV/EBITDA Hist | EV/EBITDA Cur Yr | Net Gearing Hist (%) | Gross Margin Hist (%) | Net Margin (%) | ROE Hist (%) | ROE (%) | Sh Px 1-Mth % | Sh Px 3-Mth % |
|---------|--------|------------|----------------|----------------------|--------------|------------|------------|---------|-------------|------------------|--------|------------|-------------|------------|----------------|----------------|----------------------|---------------------|--------------|-------------|----------|----------|------------|------------|
| Sunny Optical | 2382 HK | 168.30 | 23,532 | 148.5 | 44.6 | 33.7 | 25.6 | 32.1 | 31.7 | 29.6 | 1.14 | 0.6 | 0.8 | 17.33 | 12.23 | 42.0 | 31.5 | 18.3 | 13.3 | 46.9 | 42.5 | 19.3 | 19.2 |
| HSI | - | 30,958.2 | - | - | 12.4 | 12.1 | 11.0 | 2.4 | 10.4 | 7.8 | 0.4 | 0.3 | 1.2 | 3.9 | 3.1 | 15.2 | 11.0 | 51.2 | 18.5 | 5.3 | 13.3 | 15.5 | 8.4 | (0.2) |
| HSCEI | - | 12,165.79 | - | - | 9.3 | 8.2 | 7.4 | 14.0 | 10.4 | 11.6 | 0.71 | 0.3 | 0.4 | 6.02 | 5.55 | 16.6 | N/A | 28.9 | 40.8 | 13.1 | 18.0 | 26.3 | 102.4 |
| CSI300 | - | 3,779.62 | - | - | 14.4 | 12.6 | 11.0 | 14.3 | 15.1 | 15.2 | 0.8 | 2.0 | 2.4 | 1.8 | 1.7 | 12.6 | 13.3 | 107.2 | 13.5 | 3.0 | 12.6 | 19.3 | 3.2 | (11.6) |
| Largan Precision | 3008 TT | 4,545.00 | 20,397 | 106.8 | 23.5 | 23.7 | 19.0 | (1.0) | 25.1 | 11.9 | 2.00 | 1.4 | 1.7 | 6.35 | 5.55 | 15.5 | 15.7 | 0.0 | 69.4 | 48.9 | 28.5 | 25.9 | 13.9 |
| Genie Elec | 3406 TT | 458.50 | 1,530 | 110.4 | 43.7 | 33.7 | N/A | 29.6 | N/A | N/A | N/A | N/A | 6.02 | N/A | 16.6 | N/A | 25.5 | 26.3 | 26.3 | 102.4 | 26.3 | 102.4 |
| Lg Innotek Co Lt | 011070 KS | 150,500.00 | 3,314 | 32.9 | 20.4 | 22.3 | 12.2 | (8.4) | 83.0 | 25.5 | 0.87 | 0.2 | 0.2 | 1.83 | 1.68 | 7.4 | 6.3 | 58.0 | 11.6 | 2.3 | 12.9 | 15.6 | 17.1 |
| Shenzhen O-Fil-A | 002456 CH | 19.20 | 8,131 | 103.3 | 50.5 | 25.2 | 18.3 | 100.5 | 37.7 | 50.0 | 0.50 | 0.2 | 0.5 | 5.54 | 4.75 | 24.9 | 17.2 | 107.2 | 13.5 | 3.0 | 12.6 | 19.3 | 3.2 |
| Holitech Tchn-A | 002217 CH | 9.73 | 4,749 | 30.4 | 25.6 | 16.4 | 11.8 | 56.1 | 39.5 | 45.9 | 0.36 | 0.4 | 0.5 | 2.94 | 2.60 | 20.0 | N/A | 44.6 | 16.7 | 7.8 | 12.9 | 15.6 | (6.4) |
| Truly Intl Hldgs | 732 HK | 1.86 | 740 | 3.5 | 87.3 | 9.8 | 6.3 | 792.0 | 55.8 | 162.4 | 0.06 | 0.5 | 3.0 | 0.74 | 0.74 | 6.6 | 4.6 | 68.1 | 9.8 | 0.3 | 0.9 | 8.4 | (25.9) |

Historical Recommendations and Target Price

Summary of Key Points

• Strong shipment growth: Sunny Optical saw a significant increase in May shipments across HLS, HCM, and VLS, with VLS and HLS growth rates being the highest in recent months.
• Industry Recovery: The growth is attributed to the recovery in the smartphone market, driven by new product launches.
• Analyst Rating: Maintained at BUY, with an unchanged target price of HK$194.00 based on a 35x FY19E P/E.
• Financial Performance: Revenue and net profit have shown consistent growth over the years, with improving margins and ROE.
• Competitive Edge: The company is a key player in the HLS and HCM markets and has a strong partnership with Huawei.
• Risks: Potential slowdown in shipment growth, lower ASP, and political risks from the trade war.

Conclusion

Sunny Optical is performing well with strong shipment growth and a solid financial outlook. The analysts maintain a BUY rating due to its market share gains, strong alliances, and industry recovery. However, potential risks such as slower shipment growth and political uncertainties should be monitored.