Date and Broker Information
- Date of Report: October 14, 2024
- Broker: CGS International Securities
Overview of Sunny Optical Technology
Sunny Optical Technology, a major player in the optical and optoelectronic product manufacturing sector, is seeing robust growth driven by its focus on high-end products. Its 2024 performance has been notable, particularly in the fields of handset lens sets (HLS), handset camera modules (HCM), and vehicle lens sets (VLS).
Key Product Shipment Growth in 2024
Handset Lens Sets (HLS)
- Shipments (Jan-Sep 2024): 993 million units, representing a 20% year-on-year growth and 77% of the company’s full-year target.
- Demand Drivers: Increased demand from Apple’s iPhone 16 and recovery in Chinese brands.
- FY24 Forecast: 15% growth in HLS shipments, above the company’s guidance of 5-10%.
- Outlook: Expected strong demand for new models from Chinese OEMs such as Huawei’s Mate 70 series and Xiaomi’s Mi15 series.
Handset Camera Modules (HCM)
- Shipments (Jan-Sep 2024): 409 million units, forming 72% of its FY24 guidance of 567 million units.
- Focus Shift: Sunny Optical has pivoted towards high-end products such as periscope cameras and large image-size camera modules.
- Outlook: Although shipments are expected to remain flat, average selling prices (ASP) are anticipated to improve in the second half of 2024 due to a focus on high-end products, particularly from brands like Samsung.
Vehicle Lens Sets (VLS)
- Shipments (Jan-Sep 2024): 80 million units, marking a 12% year-on-year growth and achieving 76% of the FY24 target.
- Demand Drivers: Strong orders from Chinese electric vehicle manufacturers have been a key growth driver.
- Outlook: 15% growth in FY24 VLS shipments, supported by the company’s increasing market share and expanding product range.
Financial Performance and Outlook
Revenue and Profit Projections
- Revenue: Expected to increase from RMB 31,681 million in 2023 to RMB 41,029 million in 2024, representing a 29.5% year-on-year growth.
- Net Profit: Projected to rise from RMB 1,099 million in 2023 to RMB 2,766 million in 2024, reflecting a strong recovery in profitability.
- Normalized EPS: Expected to grow by 145% year-on-year in 2024, from RMB 1.03 in 2023 to RMB 2.52 in 2024.
Margins
- Operating EBITDA Margin: Expected to improve from 8.2% in 2023 to 11.8% in 2024.
- Gross Profit Margin: Anticipated growth driven by higher ASPs and a stronger product mix focusing on high-margin, high-end products.
Target Price and Valuation
- Target Price: HK$72.0, based on a price-to-earnings (P/E) ratio of 20x for FY25, in line with the 3-year average.
- Current Price: HK$53.30, indicating an upside potential of 35.1%.
- Market Cap: HK$58.35 billion (US$7.51 billion).
Investment Thesis
Positive Catalysts
- Smartphone Market Recovery: Stronger demand for high-end smartphones from Chinese brands and Apple is expected to drive future growth.
- ASP and Gross Margin Improvement: Higher contributions from advanced products like periscope cameras and ultra-thin modules for foldable phones.
- Automotive Sector Growth: Expansion in vehicle lens sets, supported by orders from Chinese automakers.
Key Risks
- Slow Recovery from Chinese Customers: A sluggish recovery could impact shipments.
- Weak Demand for High-End HLS/HCM: This could negatively affect revenue growth and gross profit margins (GPM).
ESG Performance
Environmental Performance
- Energy and Water Usage: Sunny’s energy consumption increased by 5.6% year-on-year to 640,074 MWh in FY23, while total water consumption rose by 13.9%.
- Greenhouse Gas Emissions: Increased by 4.4% in FY23 to 383,549 tCO2e, though non-hazardous waste saw a decrease of 17.3%.
- LSEG ESG Ratings: Sunny received a C+ for its environmental efforts.
Social and Governance Performance
- Employee Benefits: The company has improved its range of employee benefits and satisfaction scores, while also contributing to community development.
- Governance: Strong governance structure and product liability management, including high investment in research and development (R&D).
- LSEG ESG Ratings: B+ for social performance and A- for governance.
Conclusion
Sunny Optical Technology continues to benefit from a strategic focus on high-end optical products, especially in the smartphone and electric vehicle markets. With strong financials and improving product margins, the outlook for 4Q24 and FY25 remains positive. However, it faces potential risks tied to demand recovery in key markets.
