GPM to improve in 2H22F
- Sunny estimates 1H22F net profit fell 45% to 50% yoy due to weak smartphone sales affecting GPM and chip shortages denting VLS growth.
- We expect GPM to improve in 2H22F due to 1) HLS shipment recovery, 2) better capacity utilisation, and 3) resumption of growth in VLS shipments.
- Reiterate Add. TP of HK$147.40 is based on 22x FY23F P/E.
Profit alert: net profit fell 45-50% due to GPM erosion
? Sunny Optical Technology’s (Sunny) profit alert is in line with our bearish view for 1H22F
on 1) a weak smartphone market, especially in China and the EU, which caused
shipments to decline by 20% yoy for handset camera modules (HCM) and 9% yoy for
handset lens sets (HLS), 2) poor product mix, and 3) persistent chip shortages, affecting
vehicle lens sets (VLS) shipment growth (+1% yoy), as well as impact of Shanghai
lockdowns (logistics and production disruptions) in April and May 2022.
Poor GPM in 1H22F but see improvement in 2H22F
? Sunny expects 1H22F net profit to have decreased 45-50% yoy to Rmb1.34bn-1.48bn, including FX loss of Rmb201m for its US$ bonds (US$600m). This is ~20% below our estimate of Rmb2.0bn (-26% yoy), with the key discrepancy lower-than-expected GPM for HLS and HCM, no thanks to keener competition as a result of weaker market demand and the rapid fall in ASP due to poor smartphone sales in the high-end segment.
? Nevertheless, we believe GPM for HCM and HCL will improve in 2H22F due to 1) recovery in HLS shipments (commencement of iPhone shipments), 2) better capacity utilisation on improving customer demand, and 3) resumption of shipment growth for VLS (+25% yoy in Jun 2022, we estimate +44% yoy in 2H22F).
Reiterate Add and target price of HK$147.40
? We retain our constructive view that Sunny will be the key beneficiary of the fast-growing auto camera market due to its leading market position and strong customer base. Our TP of HK$147.40 is based on 22x FY23F P/E, -1 s.d. from its 5-year average. Share price re-rating catalysts include shipment growth resuming and GPM recovering. Downside risks: poor handset spec upgrades and prolonged chip shortages.