Overview of Sunny Optical

Sunny Optical Technology Group Co., Ltd. is leading the charge in the design, manufacturing, and sales of optical and optical-related products. These encompass glass/plastic lenses, lens sets, camera modules for mobile phones and digital cameras, microscopes, and various analytical instruments. The company operates in the Information Technology sector, with a Bloomberg ticker: 2382 HK. Its market capitalization stands at HK\$76,610 million (~US\$9,885 million), and it is a prominent player in its industry.

Sunny Optical’s Stock Performance and Recommendation

UOB Kay Hian has maintained its BUY recommendation for Sunny Optical, with a target price of HK\$85.00, reflecting an upside potential of 21.7% from its current share price of HK\$69.85. The company’s 52-week high/low stands at HK\$73.00 / HK\$33.30, showcasing a robust recovery trajectory in recent months.

Key Drivers for Growth in 2025

Smartphone Business: A Slow but Promising Growth Trajectory

Sunny Optical anticipates steady growth within the smartphone market in 2025, driven by ongoing specification upgrades and the National Development and Reform Commission (NDRC)’s recently announced trade-in subsidy program. This program, primarily targeting the Chinese market, could boost smartphone shipments by an additional 2-3 percentage points. The subsidy, which combines national, regional, and platform discounts, is expected to total RMB 1,000-1,500 per device.

The mid-to-high-end segment (priced between RMB 3,000-4,000) is forecasted to be the main growth driver. Notably, the incorporation of periscope cameras into devices within this price range could spur a replacement cycle, enhancing Sunny Optical’s product mix. Additionally, the company is expected to increase its share in Apple’s supply chain in 2025, potentially expanding its business into other Apple verticals to mitigate low-season utilization rates.

Automobile Business: Growth Linked to ADAS Development

The automobile segment is poised for expansion, fueled by advancements in Advanced Driver Assistance Systems (ADAS). While vehicle shipment volumes are expected to remain stable in 2025, vehicle camera shipments are projected to grow by 7-8% year-on-year. Sunny Optical already commands over 30% of the vehicle lens set (VLS) market and anticipates further growth, albeit with some competitive pressures.

For vehicle modules, revenue growth is expected to reach 25% year-on-year in 2024, stabilizing to low-double-digit growth in subsequent years. Margins in this segment may fluctuate but are projected to stabilize as Sunny secures more orders from foreign brands by 2025-26, enhancing operational scale.

XR/VR Business: Tied to Meta’s Robust Performance

The XR/VR division delivered notable revenue growth in 2024, closely linked to Meta’s sales of products like Meta Ray-Ban smart glasses and Quest headsets. However, the shift to Fresnel lenses for Meta’s cost-effective Quest 3S headset in 2025 could impact margins, as they are less profitable than the previously used pancake lenses.

Robotics Vision: A Nascent Opportunity

Sunny Optical is cautiously optimistic about the robotics vision sector, which remains in its infancy. The company is conducting research in this domain but has yet to see meaningful contributions to its revenue. Currently, its involvement is limited to supplying components for robotic vacuum cleaners, a market with relatively small growth potential.

Financial Highlights and Projections

Sunny Optical’s financial performance reflects its strategic positioning and market opportunities:

• Net Turnover: Projected to grow from RMB 38,102 million in 2024 to RMB 44,933 million in 2026.
• EBITDA: Expected to rise from RMB 6,112 million in 2024 to RMB 7,807 million in 2026.
• Net Profit: Anticipated to increase from RMB 2,374 million in 2024 to RMB 3,272 million in 2026.
• EPS: Forecasted to climb from 217.3 Fen in 2024 to 299.6 Fen in 2026.
• Net Margin: Predicted to improve from 6.2% in 2024 to 7.3% in 2026.
• ROE: Expected to grow from 10.2% in 2024 to 11.7% in 2026.

Sunny Optical’s robust balance sheet, highlighted by a growing cash reserve and a declining net debt-to-equity ratio (projected at -55.1% in 2026), further underscores its financial health.

Risks and Valuation

Despite its promising outlook, Sunny Optical faces potential risks, including competitive pressures and margin volatility in its automobile and XR/VR segments. However, the company’s diversified portfolio and strategic market positioning mitigate these challenges.

The stock is valued at 28.5x 2025F PE, pegged to 0.5SD below its five-year historical forward mean. This reflects UOB Kay Hian’s confidence in Sunny Optical as a significant beneficiary of ongoing smartphone specification upgrades and the growing automobile business.