Date of Report
Thursday, 03 October 2024
Broker Name
UOB Kay Hian
Positive Outlook for High-End Smartphone Camera Upgrades
Sunny Optical is expected to benefit from the ongoing trend of specification upgrades in high-end smartphones. Industry checks indicate that this trend will be clear in the coming quarters, particularly in the smartphone camera component market, where increased demand for better camera quality is driving growth.
Improved Pricing and Margins
With improvements in the competitive landscape, Sunny Optical’s average selling prices (ASP) and margins are expected to continue improving through the second half of 2024 and into the first half of 2025. In the compact camera module (CCM) segment, the company expects its blended ASP to rise by high single digits in the second half of 2024, building on a recovery in the teens percentage range seen in the first half of the year. This ASP improvement is expected to offset any potential volume declines.
Strength in Handset Lens Sets (HLS) Business
Sunny Optical’s handset lens sets (HLS) business is also expected to perform well, particularly in the iOS supply chain. The company is projected to gain market share, both in terms of volume and profitability, which will further support its growth in this segment.
Potential Impact of China’s Stimulus Package
The Chinese government is expected to roll out a stimulus package aimed at boosting consumer electronic purchases, which could have a positive impact on Sunny Optical. Any cash or subsidy-based stimulus could accelerate the pace of smartphone consumption and, consequently, drive an upgrade cycle for smartphone specifications in late 2024 and early 2025.
Valuation and Target Price
UOB Kay Hian recommends a “BUY” rating for Sunny Optical, with a target price of HK$63.00, based on a 21.2x 2025 forecast price-to-earnings (PE) ratio, which is 1 standard deviation below the company’s five-year historical forward mean PE. Although the current share price is close to the target price, there is potential for further upside if additional government stimulus measures are introduced.
Catalysts for Share Price Growth
Sunny Optical’s share price could be further boosted by the anticipated stimulus measures targeting consumer electronic purchases. Additionally, continued improvements in ASP and margins in the smartphone camera segment are expected to drive performance in the coming quarters.
Timeline for Growth
The company’s growth trajectory is likely to accelerate from late 2024 through the first half of 2025, driven by smartphone upgrades and potential government stimulus. Investors should watch for further developments in these areas as they could significantly impact Sunny Optical’s financial performance.
Investment Outlook
Sunny Optical is well-positioned to capitalize on market opportunities in the smartphone camera component space, with continued improvements in pricing and margins. The company’s potential for market share gains and the positive impact of China’s upcoming stimulus package make it an attractive investment opportunity for those looking to benefit from growth in the high-end smartphone market.
