> **来源：[研报客](https://pc.yanbaoke.cn)** # Sunny Optical (2382 HK) Equity Research Summary ## Core Content Sunny Optical is a leading integrated optical component manufacturer and a primary camera module supplier to top-tier domestic handset brands in China. The company's stock price has increased to HK$30.15 as of 21 July 2016, with a target price of HK$24.00, reflecting a 20% downside potential from the current level. The firm has been downgraded from HOLD to SELL due to intensified competition in key segments and concerns about earnings growth. ## Key Information - **Market Data**: - 12 Months High: HK$30.65 - 12 Months Low: HK$10.96 - 3M Avg Daily Volume: 5.49 million shares - Issue Share: 1,097.00 million shares - Market Cap: HK$33,074.55 million - Fiscal Year: 12/2015 - Major Shareholder: WANG WENJIAN (38.54%) - **Earnings Forecast (RMB million)**: - FY16E: RMB950 million - FY17E: RMB1,239 million - FY18E: RMB1,565 million - Earnings Growth (FY16E): 25% - Earnings Growth (FY17E): 30% - Earnings Growth (FY18E): 26% - **Earnings Estimate vs. Consensus**: - FY16E: 12% below consensus - FY17E: 11% below consensus - **EPS (HK$)**: - FY16E: 1.083 - FY17E: 1.411 - FY18E: 1.784 - EPS Growth (FY16E): 23% - EPS Growth (FY17E): 30% - EPS Growth (FY18E): 26% - **P/E Ratio**: - FY16E: 27.8 - FY17E: 21.4 - FY18E: 16.9 - Based on 17x FY17E PE (20x on optical components, 12x on optoelectronic) - **Net Profit Margins**: - FY16E: 7.9% - FY17E: 9.4% - FY18E: 11.0% - **Gross Profit Margins**: - FY16E: 17.2% - FY17E: 18.8% - FY18E: 20.4% ## Main Points and Analysis ### 1. **Downgrade to SELL** - The downgrade is due to intensifying competition in the HCM and HLS segments, which may lead to a potential miss in shipment targets and ASP (average selling price) erosion. - The VLS segment, although showing long-term growth, may not be sufficient to offset the weakness in HCM and HLS. ### 2. **HCM Segment Analysis** - Sunny Optical is losing market share to its peer in the HCM segment. - The peer shipped ~30 million units in Jun16 with 50% sales from 13MP+ models, while Sunny shipped 25 million units. - 13MP HCM pricing has dropped to ~RMB40 per unit, below Sunny's assumptions. - The peer's target shipment for FY16E is 250 million units, while Sunny's guidance is 262 million units, up 15% YoY. - The peer is the largest customer for BBK Camp (Oppo and Vivo), which may surpass Huawei in 2016. ### 3. **HLS Segment Analysis** - HLS shipment growth is expected to be 20% YoY for FY16E and FY17E. - ASP erosion is a concern, with 13MP HLS pricing now below RMB6.0. - The company's assumption of 8MP+ HLS accounting for 35% to 45% of total shipments is considered optimistic. ### 4. **VLS Segment Analysis** - VLS shipment growth is expected to be 40% CAGR from FY16E to FY18E, higher than the company's guidance of at least 35% YoY growth in 2016. - The VLS segment is projected to contribute 52% to 63% of total gross profit, showing strong mid-term growth potential. ### 5. **Earnings Revisions** - FY16E earnings were revised down by 12.0% to RMB950 million. - FY17E earnings were revised down by 11.3% to RMB1,239 million. - The optical component segment is expected to contribute 22% to 30% of total revenue and 52% to 63% of total gross profit. ### 6. **Share Price and Investor Activity** - The share price has recorded a 72% YTD return, driven by SH-HK Connect investors. - The stake held by SH-HK Connect investors increased from 11.7 million shares (1.07%) to 19.3 million shares (1.76%) as of 15 June 2016. ### 7. **Risks** - Potential better-than-expected HCM shipments - Slower-than-expected HLS ASP erosion - Better-than-expected margin enhancement from HLS/VLS - Better-than-expected HCM GPM due to mega pixel migration ## Key Ratios and Financial Highlights - **Gross Margin**: 17.2% (FY16E), 18.8% (FY17E), 20.4% (FY18E) - **Operating Margin**: 9.4% (FY16E), 11.2% (FY17E), 13.1% (FY18E) - **Net Margin**: 7.9% (FY16E), 9.4% (FY17E), 11.0% (FY18E) - **P/B Ratio**: 5.8 (FY16E), 4.8 (FY17E), 3.9 (FY18E) - **Yield**: 1.0% (FY16E), 1.3% (FY17E), 1.7% (FY18E) - **DPS (HK$)**: 0.307 (FY16E), 0.400 (FY17E), 0.506 (FY18E) - **EBITDA Margin**: 11.3% (FY16E), 13.2% (FY17E), 14.7% (FY18E) - **Current Ratio**: 1.61 (FY16E), 1.74 (FY17E), 1.90 (FY18E) - **Quick Ratio**: 1.38 (FY16E), 1.50 (FY17E), 1.66 (FY18E) - **Inventory Turnover (days)**: 37 (FY16E), 37 (FY17E), 37 (FY18E) - **AR Turnover (days)**: 102 (FY16E), 102 (FY17E), 102 (FY18E) - **AP Turnover (days)**: 119 (FY16E), 119 (FY17E), 119 (FY18E) - **Cash Conversion Cycle (days)**: 20 (FY16E), 20 (FY17E), 20 (FY18E) ## Conclusion Sunny Optical faces significant challenges in maintaining its market share and profitability in the HCM and HLS segments due to increased competition and ASP erosion. While the VLS segment shows strong growth potential, it may not be enough to offset the losses in other segments. The company's earnings growth is expected to be lower than the market consensus, leading to a revised target price of HK$24.00. The downgrade to SELL reflects concerns about the company's ability to meet earnings expectations in the near term.