Strong shipment increase likely in 2H23F
- We believe June shipments highlighted a recovery in orders from Chinese handset OEMs, especially for handset camera modules (HCM).
- We project HCM/HLS shipments to increase by 40%/30% yoy in 2H23F, underpinned by easing inventory issues and increasing orders from OEMs.
- Reiterate Add. TP of HK$130.30 is based on 24x CY24F P/E.
Jun shipments show sustained improvement since April 2023
? Sunny Optical’s June shipments continued to rise, with handset camera modules (HCM)/handset lens sets (HLS)/vehicle lens sets (VLS) shipment growth of +29%/+26%/+19% yoy or +7%/-4%/-3% mom respectively, to 52.2m/91.0m/7.4m units. HSL/VLS shipments declined mom but remained stable in absolute terms at around 90m and 7.5m units, respectively, in June.
Expect robust shipment growth in HCM/HLS in 2H23F
? HCM 6M23 shipments fell 12% yoy to 254.6m units (47% of Sunny’s guidance and our estimate). We expect 2H23F HCM shipments to grow c.40% yoy, driven by 1) Chinese OEMs starting to refresh their model portfolios on easing inventory issues, 2) higher shipments for Samsung, and 3) a lower base of shipments in Jul-Sep 2022. Overall, we expect Sunny’s HCM shipments to increase c.10% yoy in FY23F, better than the company guidance of +5% yoy.
? HLS 6M23 shipments decreased by 21% yoy to 512.8m units (41% of Sunny’s guidance and our estimate), vs. the company’s guidance of 5% yoy growth in FY23F. However, we anticipate a robust c.30% shipment increase in 2H23F, supported by rising Apple shipments and a rebound in China OEM orders.
? VLS 6M23 shipments increased by 25% yoy to 47.1m units, above the company’s target of 15% yoy, thanks to steady market share increases made possible by a wider product range. We project that 2H23F shipments will continue to rise at a steady 15% yoy rate, helped by sustained order volume from customers in Europe and rising demand from Chinese start-up EV makers.
Sustained GPM/ASP pressure in 1H23F; see improvement in 2H23F
? We expect sustained GPM and ASP pressure in HCM and HSL in 1H23F due to weak demand from Chinese OEMs in 1Q23, increased competition in the supply chain, and decreased component and material prices. Sunny Optical will disclose its first-half results for FY23F in mid-Aug. We expect an improvement in ASP and GPM in 2H23F due to higher output of sophisticated products, thanks to considerable camera specification upgrades in the latest wave of new product launches.
Reiterate Add, TP unchanged at HK$130.30
? We reiterate Add on Sunny Optical due to growing HLS shipments to Apple and rising contribution from automotive products. Our TP of HK$130.30 is based on 24x CY24F P/E, its 5-year average, reflecting its strong position in VLS and HLS markets. Potential share price catalysts include strong shipments and margin improvement in HCM/HLS. Downside risks include poor handset camera specification upgrades in the upcoming new model launches, dragging down HCM/HLS ASP and GPM.
