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Weak shipments likely to continue

  • Sunny’s 3Q21 shipments declined for all segments: HLS/HCM/VLS shipments decreased by 22%/6%/6% yoy, respectively.
  • We expect HLS/HCM/VLS shipments to recover strongly in FY21F due to improved chip supply and strong demand in handset/automotive segments.
  • Reiterate Add with a lower TP of HK$250 as we cut our FY21-23F EPS by 8-9% to reflect the weak shipments due to chip shortages.
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Weak 3Q21 shipments due to supply issues

Sunny posted weak Sep shipments due to persistent chip shortages in both handset and vehicle segments. Handset les sets’ (HLS) shipment fell 20.8% yoy (+5.8% mom), handset camera module (HCM) shipments declined 8.9% yoy (-3% mom) and vehicle lens sets’ (VLS) shipments fell 21.4% yoy (-8.3% mom) in Sep. Coupled with production disruptions in Vietnam, Malaysia and India, Sunny’s 3Q21 shipments declined for all segments due to weak demand from Samsung and Xiaomi for HLS and HCM while VLS shipments were affected by a global slowdown in vehicle sales. HLS shipments fell 22% yoy, HCM shipments declined 6% yoy while VLS shipment decreased by 6% yoy in 3Q21. We expect the chip shortage for the automotive segment to extend into 4Q21F, with rapid growth in Chinese electric vehicles (EVs) market and increasing innovative IoT product launches.

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HLS, HCM and VLS shipments likely missed company guidance

Sunny’s 9M21 HLS shipments fell 3% yoy; this was 10% pts below the company’s guidance of 5-10% yoy growth in FY21F due to weak demand from Samsung and keen competition in mid-range products. Based on the current run rate of c.130m units/month, we forecast the HLS shipments to decline 5% yoy in FY21F (vs. our previous forecast of +10% yoy). 9M21 HCM shipments grew 19% yoy which was 3% pts below the company’s guidance of 20-25% yoy growth in FY21F. We forecast HCM shipments to increase 17% yoy in FY21F (vs. our previous forecast of +23% yoy) to reflect delays in the launch of some new models by Chinese brands due to the shortage of advanced 5G system-on-chip (SoC). 9M21 VLS shipments jumped 43% yoy from a low base last year; this was ahead of the company’s guidance of 30-35% yoy growth in FY21F. We forecast VLS shipment growth of 24% yoy in FY21F due to persistent chip shortage and disruptions in supply chain. We lower our FY21F/22F/23F EPS forecasts by c.9%/8%/8% to reflect our lower shipment forecasts. Nevertheless, we believe gross profit margin (GPM) will remain resilient in 2H21F, supported by enhanced automation and an improving product mix (higher shipment proportion of 5-10x periscope module and large image size module).

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Reiterate Add with a lower target price of HK$250.0

We retain Add on Sunny Optical despite our EPS cuts as we expect a strong shipment recovery in FY22F due to easing chip shortage and the return of global handset demand. We lower our TP to HK$250.0 following our EPS cuts, still based on 30x FY22F P/E, +2 s.d. from its 5-year average, as we believe handset camera spec-upgrades and vehicle camera demand are intact. Potential share price catalysts include sustained order increase from Apple and a recovery in VLS and HLS shipments. Risks remain persistent chip shortages in handset and automotive segments.