CICC released a research report stating that it maintains sunny optical's (02382) 2024/2025 net income forecast for the parent company at 2.47 billion yuan/2.87 billion yuan. The bank maintains an outperform rating on the industry and a target price of 63.4 Hong Kong dollars. The company's shipment volume in October decreased compared to the previous month. Focus on the optical upgrade of Android's new machines and the optimization of the company's product structure. The growth rate of automotive and XR-related products remains robust.

CICC's main points are as follows:

Sunny Optical Technology announced October shipment volume data:

1) Mobile optics: The company's mobile camera module shipments were 3.379 million units, a year-on-year decrease of 37.5%/month-on-month decrease of 8.1%, mainly due to the company's focus on mid-to-high-end projects, resulting in a year-on-year decrease in shipments but significant improvement in product structure. Mobile lens shipments were 0.116 billion units, a year-on-year decrease of 1.9%/month-on-month decrease of 2.6%. During the same period, Largan's monthly revenue increased by 3.5% year-on-year/month-on-month by 0.4%, while Yujing's monthly revenue decreased by 22% year-on-year/month-on-month by 24%. The bank believes this mainly reflects the difference in Android customer stocking demand.

2) Automotive-related products: The company's October automotive lens shipments were 8.706 million units, an 11.5% year-on-year increase/month-on-month decrease of 6.5%, with a clear trend of year-on-year growth throughout the year.

3) Other optoelectronic products: Shipment in October was 0.727 million units, a 120.5% year-on-year increase/month-on-month decrease of 0.6%.

Mobile optical shipments slightly decreased month-on-month, focusing on Android's new mobile optical upgrade and the optimization of the company's product structure.

On the mobile camera module side, Sunny Optical's shipments from January to October decreased by 5% year-on-year, mainly due to the company's continued push for product structure upgrades. The bank believes that the increase in ASP and gross margin in 2H24 may offset the impact of the decline in shipments, still expected to achieve robust performance growth. On the mobile lens side, Sunny Optical's shipments from January to October increased by 17% year-on-year. The bank expects the full-year shipment growth rate to exceed the company's previous guidance, while ASP and gross margin are also expected to improve with the shipment of more 6P, 7P, and glass-plastic hybrid lenses. From the perspective of innovation, optics is a crucial part of mobile micro-innovation, with Honor Magic7, Xiaomi 15, and vivo.

The Android flagship new machines released in October, such as X200, are all equipped with 50 million pixel triple cameras. Xiaomi 15Pro changed the floating telephoto lens to a periscope telephoto lens. The bank believes that the optical upgrade of flagship models is still ongoing, and may further extend to mid-to-low-end models in the future, bullish on Sunny Optical as a leading optical company, optimizing its own product structure amidst the expansion of high-end lens and module market capacity.

Car-mounted and XR related products have maintained a stable growth rate.

Sunny Optical's car lens shipments in January-October increased by 12% year-on-year. The bank sees improvements in the single-car installation volume, average pixels, and localization level of car cameras, and is optimistic that the company, as a leading supplier of car lenses, will continue to benefit. In addition, Sunny Optical's shipments of other optoelectronic products in January-October increased by 51% year-on-year. The bank expects rapid growth in revenue from products such as camera modules and lenses to follow the surge in AR/VR terminal sales.

Risks: Global terminal demand remains weak, and the smartification of the automotive industry progresses slower than expected.