2024 Investor Day takeaways
Sunny Optical held its annual investor day on 18 June, which mainly focuses on technology and market trend. Company does not upgrade its guidance as some have speculated but it did slightly revise up 2024 global smartphone outlook. Key takeaways from the meetings include fast growth in hybrid smartphone lens, periscope, ultra-thin HCM for foldable, hybrid ADAS vehicle lens, LiDAR, AR HUD, headlamp and vehicle camera module as well as flexing its exposure in AI smartphone. Given Android's strong YTD growth and Company's YTD shipment beat, we expect 1H24 margins to recover meaningfully. In the following quarters, we also expect Company may continue re-rate driven by AI hardware momentum such as AI iPhone and AI AR glass. We maintain BUY rating on Sunny Optical and increase our TP from HK$61 to HK$69 based on 24x 2025E EPS.
Key Factors for Rating
Smartphone: Mgmt. revised up 2024 global smartphone shipment forecast and is positive on the foldable phone sales increase in 2024. Mgmt. believes AI smartphone will trigger the popularity and miniaturisation of auxiliary camera while camera shipment momentum might happen after 2025. The mgmt. also sees 3D camera a revived trend for smartphone. Increasing market share of US client and high-spec project for Korean client will be a key target to achieve in the following years. Mgmt. is positive on margin improvement thanks to spec- upgrade in 2024 and 2025.
Automotive: 80% of Global EV brands use Company's HLS in 2023. Mgmt. has more than 15 LiDAR projects to commence mass production in 2024-2025. The mgmt. also guides its global market share of AR-HUD PGU will increase from 3% in 2023 to 6% in 2024; global market share of headlamp will increase from 1% in 2023 to 18% in 2024. Although EV price war in China is a pressure, mgmt. believes differentiation, cost control and product improvement can offset.
AI, Robot, XR: 1) AI: Sunny Optical has rich product offerings related to Rx and Tx hardware. 2) Robot: Robot will need vision and Sunny Optical is a vision company. Cameras will account for 2.5-5% of the content value in robots, with additional contributions from sensors. 3) XR: Sunny Optical has business exposures in Meta AR/VR glasses, covering all the key optical components.
Key Risks for Rating
1) Demand miss for high spec smartphone; 2) slower-than-expected market share gain; 3) new price war initiated by peers; and 4) negative macro.
Valuation
We increase our 2024/25 EPS forecasts by 6%/6% to factor in strong YTD shipment in HLS and HCM and better operating leverage. We use 24x 2025E EPS (was 30x 2024E EPS), or -1.5sd below three-year average to value Sunny Optical. Maintain BUY with a higher TP of HK$69 (was HK$61).