【Company Research】Sunny Optical (2382 HK) – Solid recovery on track; Bumpy 4Q amid Huawei ban

Sunny Optical reported solid Aug shipment with HCM/HLS up 11%/19% MoM and 8%/22% YoY, driven by Huawei strong order pull-in ahead of 15 Sep and China market gradual recovery in 3Q20E. We expect bumpy 4Q20E outlook amid Huawei ban, but Xiaomi/Samsung/Oppo’s recent aggressive move for share gain in China/Europe will drive restocking and partially offset the impact in 4Q20E. The stock now trades at attractive valuation of 19.7x FY21E P/E. We suggest to accumulate on recent weakness, as we expect near-term overhang to be removed after Huawei ban becomes effective on 15 Sep. Upcoming catalysts include stronger Xiaomi/Samsung orders in 4Q20E and Apple order win in 1H21E.

 

  • Solid HCM/HLS on Huawei order pull-in; VLS recovery on track. Sunny’s HCM (camera module) shipment grew 22% YoY /19% MoM, driven by Huawei order pull-in ahead of 15 Sep ban and Chinese brands/Samsung recovery. Sunny’s HLS (handset lens sets) also posted solid growth with 8% YoY /19% MoM, backed by Samsung’s 3Q20 recovery (No.1 supplier) and Xiaomi/Oppo’s aggressive product launches in China/Europe. Sunny’s VLS (vehicle lens) continued recovery with 8% YoY/ 11% MoM in Aug for four consecutive months as global automobile production resumed in 3Q20E.

 

  • Expect Huawei ban in 4Q20E offset by demand from Samsung/ Chinese brands. While we believe Huawei impact will start to kick in after 15 Sep, we expect Samsung/Xiaomi’s share gain and China market recovery will offset Huawei’s order decline. For instance, it was reported that Samsung raised FY21E shipment target to 300mn (up 15% YoY), and Oppo increased 2H shipment target to 100mn (vs 47mn in 1H). Xiaomi also announced to aggressively push budget 5G phones in China and Europe.

 

  • Camera spec upgrade to resume in 1Q20E; iPad order win as catalyst in 1H21E. While non-5G functions will remain under pressure given de-spec trend in 4Q20E, we expect cam upgrade cycle will resume in 1H21E after launch of Qualcomm Snapdragon entry-level 4-series 5G SoC in 1Q21E and Apple 5G iPhone with tri-cam/LiDAR 3D sensing. We also see potential iPad order win will drive shipment upside in 1H21E.

 

  • Huawei ban largely reflected; Reiterate BUY. We believe Huawei impact is largely priced in after recent correction, and Apple-led 3D upgrade cycle will be positive to Sunny’s outlook in FY21E. We recommend to accumulate the stock for multi/3D-cam and 5G/video-driven upgrade cycle in 2021. Our SOTP-based TP of HK$148 implies 24.6x FY21E P/E.
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