Last Closing: HK$23.2 Upside: +25% Target Price: HK$29.0 ...researchreport.bocomgroup.com/2382-160426e.pdf · For handset lens sets, we expect market share gains to continue, helped

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26 April 2016

Financial Highlights Y/E 31 Dec 2014 2015 2016E 2017E 2018E

Revenue (RMB m) 8,426 10,696 13,201 16,100 19,103

YoY growth (%) 45% 27% 23% 22% 19%

Net profit (RMB m) 566 762 1,088 1,404 1,739

EPS (RMB) 0.52 0.70 1.00 1.30 1.60

Vs. Consensus (+/- %) n.a. n.a. 1.5% 4.5% 6.0%

EPS growth (%) 19% 34% 43% 29% 24%

P/E (x) 36.4 27.2 19.0 14.7 11.9

P/B (x) 6.4 5.4 4.5 3.7 3.0

Dividend yield (%) 0.7% 0.9% 1.4% 1.8% 2.2%

Source: Company, BOCOM Int’l estimates

After a strong 2015 highlighted with handset lens growth and margin turnaround, we

continue to see many multi-year growth drivers for the company, including 1) handset lens

mix improvement and share gains (still at early stages), 2) increased adoption of dual-cam

and other new features such as PDAF, and 3) strong future growth in IoT category such as

vehicle cameras (ADAS), drones/sports cameras, surveillance cameras and VR/AR. We

expect robust revenue growth and margin improvement to continue. Near-term catalysts

include further market share gains in handset lens, pick up in monthly shipments, and

signs of increasing adoption in dual-cam. Our TP of HKD29 is based on 19x 2017E P/E.

Initiate with BUY.

Handset lens mix and share still have lots of room for growth; Sunny a dual-cam leader.

We believe Sunny handset lens mix (17% 8MP of above vs. Largan 85%) and share in China

smartphone (10% in YE15 vs. Largan 40%) still have a lot of room for growth, driven by 1)

increased acceptance by handset brands and penetration into camera module makers, and

2) increasing product competitiveness, and 3) better prices. We forecast Sunny 8MP+

portion rising to 27% this year (vs. 17% in 2015). We believe Sunny Optical is a leader in

dual-cam with more manufacturing experience; dual-cam adoption is still at an early stage

and will likely represent another multi-year growth opportunity, in our view.

An IoT play longer term. We expect non-handset revenue contribution to remain at around

20% in 2016E, but we expect this to be the faster growing segment driven by strong unit

growth in IoT related devices such as vehicle lens sets (7% of revenue but 17% GP

contribution by 2017E), surveillance cameras (smart home/smart city related),

drones/sports cameras, and VR/AR (360 degree cameras). Backed by a strong customer

base, we expect Sunny Optical to be a key beneficiary of the IoT theme for years to come.

Initiate with BUY. We expect EPS to grow at a CAGR of 36% in 2015-17, on revenue

growth of 23% CAGR and continued GM improvement. Shares trade at 19x 2016E P/E

(vs. 5-year average of 16x and 1 S.D. above historical of 22x). Catalysts to share price

include signs of further market share gains in handset lens, pick up in monthly

shipments, and increasing adoption of dual-cam. Given the strong demand outlook and

the favorable competitive landscape, we would be aggressive buyers if shares pull back

to the early April level of around HKD21.5. Our TP of HKD29 is based on 19x 2017E P/E

(1/2 SD above historical).

Last Closing: HK$23.2 Upside: +25% Target Price: HK$29.0 Technology Sector

Sunny Optical (2382.HK) UP MP OPUP MP OP

Initiation of coverage

Many growth drivers still ahead; Initiate with BUY

SELL

NeutralLT

BUY

BUY

Stock

Handset lens mix and share still have lots of room for growth;

Sunny a leader and a key beneficiary in dual-cam

IoT represents a multi-year

opportunity with strong growth driven by vehicle lens sets (ADAS), surveillance camera, drones and

VR/AR related devices.

Initiate with Buy and TP of HKD29

Stock data 52w High (HK$) 25.65

52w Low (HK$) 10.96

Market cap (HK$m) 26,218.30

Issued shares (m) 1,097.00

Avg daily vol (m) 9.07

1-mth change (%) 4.82

YTD change (%) 34.12

50d MA (HK$) 20.18

200d MA (HK$) 17.43

14-day RSI 57.8

Source: Company data, Bloomberg 1 Year Performance chart

-4 0%-3 0%-2 0%-1 0%

0%10%20%30%40%50%60%

Apr-15 Aug-15 Dec-15 Apr-16

HSI 2382.HK

Source: Company data, Bloomberg

Chris Yim [email protected]

Tel: (852) 2977 9243

Sunny Optical (2382.HK) Technology Sector

Company (XXXX.HK) xxx Sector

26 April 2016


2

Strong demand outlook; multiple drivers still ahead

Handset related business (80% of revenue in 2015): On the camera module side, we

expect growth to be largely driven by 1) ASP increase from new feature adoption,

and 2) strong customer base as industry smartphone growth slows. We expect pixel

migration to slow and new features such as dual camera and PDAF to be the key ASP

drivers. For handset lens sets, we expect market share gains to continue, helped by

increasing product competitiveness.

Non-handset business (20% of revenue in 2015): We expect IoT related devices such

as vehicle lens sets (ADAS), surveillance cameras (smart home related),

drones/sports cameras, and VR/AR to be the key drivers here. Sunny Optical has a

strong customer base in each of these rapidly growing segments.

Figure 1: Handset lens set a mix improvement and market share story Handset related (growth from mix change and market share gains) - 80% of revenue in 2015:

Lens sets Key drivers: Target:

pixel migration Target 8MP and 13MP shipment to each double in 2015 and total shipment to rise 20-30% YoY

market share gains Sunny Optical YE15 China M/S 10% vs. leader at 40% M/S, target to become China #1 in the next few years

Source: company data, BOCOM Int’l

Figure 2: Handset camera module growth may see significant ASP increase Camera modules Key drivers: Impact Growth outlook

Dual camera module ASP >2x vs. single camera module 2016 may only include top tier brands, but design in picking up per lens makers

PDAF 15-20% increase in ASP Fast adoption at the higher end

OIS 40-60% increase in ASP Gradual growth as mid/low end may prefer digital image stabilization

Software algorithm (in development)

add value to dual camera modules Handset makers without dual-cam algorithm may adopt

Source: BOCOM Int’l

Figure 3: Non-handset growth will be more driven by industry unit growth Non-handset related (still in early stages of growth) - 20% of revenue in 2015:

picture applications/drivers customers customers/industry growth

Vehicle lens sets

ADAS (safety); government regulation; self-driving; consumer preference

Most 1st tier automobile OEM

Sunny expects its shipment to rise 30%+ YoY (vs. +47% in 2015), industry forecast 22% CAGR from 2015-20

Security camera

surveillance; smart and connected home

Hikvision (#1 in security camera, Sunny Optical is the #1 supplier)

Hikvision 2013-15 revenue grew at 53% CAGR

Drones/Action camera

recreational; package delivery; surveying

GoPro (#1 in sports camera), DJI (drones), Parrot (drones)

GoPro 2013-15 shipment up 32% CAGR, industry drone shipment around 2-3m units in 2015 (up 140% YoY)

VR/AR related

gaming; new VR/AR applications emerging

Oculus Rift, HTC Vive VR headset expected growth 77% CAGR from 2016-2020

Source: BOCOM Int’l



26 April 2016


3

Financials: Robust revenue growth and rising margin

We expect strong revenue growth to continue to be driven by 1) mix improvement from

handset lens sets and handset camera modules, 2) growth in vehicle lens sets, and 3)

growth from other products such as action cameras/drones, VR/AR related devices, and

surveillance cameras. After a five-year margin decline, GM rebounded in 2015 due to

product mix improvement and margin strength in optical components (lens). We expect

GM to continue to gradually improve due to 1) handset lens and camera module mix

improvement and 2) increasing contribution from vehicle lens sets with a GM of around

40% (vs. corporate average of 16.5% in 2015).

Figure 4: Sunny Optical revenue forecast Figure 5: Sunny Optical revenue breakdown

3%

39% 37%

59%

46% 45%

27%23% 22%

0%

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RMBm Revenue (LHS) YoY (RHS)

33%20% 17% 21% 23% 23%

63%76% 81% 77% 76% 76%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016E 2017E

Optical components Optoelectronics productsOptical Instruments

Source: Company data, BOCOM Int’l Source: Company data, BOCOM Int’l

Figure 6: Sunny Optical GP and GM forecast Figure 7: Sunny Optical GP contribution by division

20.9%21.6%

20.9%

18.6%

16.6%

15.3%

16.5%17.0% 17.3%

10%

12%

14%

16%

18%

20%

22%

24%

0

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20

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RMBm GP (LHS) GM (RHS)

41.9%30.8% 30.2%

47.8% 52.1% 51.8%

49.3%59.9% 63.2%

47.4% 44.6% 45.4%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016E 2017E

Optical components Optoelectronics products

Optical Instruments


Figure 8: Sunny Optical margin by division forecast GM by segments 2009 2010 2011 2012 2013 2014 2015 2016E 2017E

Optical components 23.0% 22.2% 22.4% 22.8% 24.6% 26.7% 35.1% 39.1% 39.2%

Optoelectronics products 12.2% 13.3% 14.7% 14.1% 12.6% 11.5% 9.6% 10.0% 10.3%

Optical instruments 33.5% 37.4% 34.5% 34.1% 37.3% 36.8% 37.5% 38.7% 39.4%

Source: Company data, BOCOM Int’l



26 April 2016


4

Handset lens sets: Mix migration and market share gain story

Mix and share still have lots of room for growth. We note that pixel migration seems to

be slowing in smartphones, as 16MP/20MP adoption seems to be gradual. Galaxy S6 was

a 16MP camera model, but Samsung switched to a 12MP camera this year for Galaxy S7

while still using the camera as a key selling point. We also note that iPhone 6s and the

Huawei P9 are also 12MP smartphones. Smartphone makers seem to prefer new features

over increasing resolution. However, with Sunny Optical’s megapixel mix still low vs. key

competitor Largan (8MP or above accounted for 17% of shipment for Sunny Optical vs.

80% for Largan), we believe Sunny’s pixel mix still has a lot of room to grow. We believe

the company has already achieved good yield rates for lower megapixel products (8MP or

below), but still has room for improvement for 10MP and above.

Figure 9: Sunny Optical handset lens shipment forecast Lens shipment

% 2013 2014 2015 2016E

8MP % 9% 19% 8% 13%

10MP or higher % 0% 2% 9% 14%

Others 91% 79% 83% 73%

Total 100% 100% 100% 100%

Shipment (k)

8MP % 5 23 24 49

10MP or higher % - 2 27 55

Others 50 94 250 276

Total 55 120 302 380

YoY -22% 117% 152% 26%


Figure 10: Sunny handset lens set shipment forecast Figure 11: Sunny handset lens revenue forecast*

59 77 70 55 120 302 380 475

30%

-8%-22%

117%

152%

26% 25%

-50%

0%

50%

100%

150%

200%

0

100

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300

400

500

20

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m

Tho

usa

nd

s

Handset lens set (m) YoY(RHS)

637 849 1,028 1,150 850 947 1,627 2,089 2,494

0%

33%

21%12%

-26%

12%

72%

28%19%

-40%

-20%

0%

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40%

60%

80%

0

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1,000

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RMBm Handset lens revenue YoY (RHS)


*Include handsets and others (spherical), exclude vehicle lens sets

Handset camera modules: dual cam and PDAF the focus

Sunny Optical is a leader in dual-cam. Among the regional camera module makers, we believe Sunny is a leader in dual camera modules as 1) it was a supplier to the Honor 6 Plus dual-cam (around 1-2 years ago), and 2) the company is developing software algorithm to accompany its dual-cam solution, offering more values to customers. Dual-cam may become a key driver to camera module revenue as its ASP is more than twice as high vs. single camera module. We believe the company is a leading supplier also for the recently launched Huawei P9. However, while design-in for dual-cam is picking up



26 April 2016


5

(as commented by camera modules/lens makers), we currently do not have visibility of a strong dual-cam ramp-up this year, outside of the leading international brands such as Huawei and Apple. We believe software capabilities remain a hurdle for some smartphone makers.

Phase detection auto focus (PDAF) to see wider adoption. We believe PDAF may see

faster adoption vs. dual-cam and OIS due to 1) the importance of fast and precise focus

(consumer preference), and 2) absence of significant extra cost. We estimate camera

modules with PDAF have a 15% ASP premium and will likely get adopted at 13MP camera

or higher. PDAF is a technology commonly used in DSLRs and works particularly well in

bright environments.

Figure 12: Sunny handset camera module shipments Figure 13: Huawei P9 dual camera

44 70 97 133 187 228 274 320

59%

39% 37%41%

22% 20%17%

0%

10%

20%

30%

40%

50%

60%

70%

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Handset camera module shipment (m) YoY (RHS)

Source: Company data, BOCOM Int’l Source: Huawei, BOCOM Int’l

Vehicle lens sets still has strong multi-year growth ahead

We believe vehicle lens sets still have strong multi-year growth outlook ahead, after 48%

CAGR in 2013-15. Sunny Optical is likely the #1 vehicle lens set provider to the

automobile industry with about 30% market share, and the company expects its

shipment to grow another 30% YoY or more in 2016E. We view this target as reasonable

and slightly above the industry growth rate expected by the industry. We note that

although most US vehicles this year already have a rear-view camera as standard, there is

ample room for growth as 1) we expect the number of cameras per vehicle to increase

(front/side cameras) as some mid-tier models (MSRP USD30k or above) already have

options for front/side cameras, 2) ADAS technology is being adopted by vehicles outside

of the US (especially in Europe), and 3) new (Tesla) and traditional car makers are pushing

into self-driving.



26 April 2016


6

Figure 14: Sunny Optical vehicle lens shipment forecast Figure 15: Sunny Optical vehicle lens GP forecast

8 11 17 22 29 36

50%47%

35%

29%

24%

10%

20%

30%

40%

50%

60%

0

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40

2013 2014 2015 2016E 2017E 2018E

m Sunny Optical vehicle lens set shipment forecast

YoY (RHS)

126 182 257 357 473 608

13%

14%15%

16%

17%

18%

10%

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2013 2014 2015 2016E 2017E 2018E

RMBm Sunny Optical VLS GP % to company GP total


Figure 16: ADAS utilizes camera, LIDAR and radar sensing technology

Source: TI, BOCOM Int’l

Addressing VR/AR: 360 cameras may become more meaningful

We believe the direct contribution from VR/AR devices to Sunny Optical will remain

limited in the foreseeable future as shipments of higher-end VR headsets will remain

relatively small. While the lens requirement of VR headset is low, we believe the 360

degree camera has more growth potential from the VR/AR perspective. The 360 degree

camera is used to capture 360-degree pictures and videos, offering a new way to capture

the user experience. The growth in VR may help drive 360 degree camera shipment as

the device is also used to generate VR content. Similar to VR technology, the prices of 360

degree camera have come down significantly to drive consumer demand.

360 degree camera is one of Sunny Optical’s key focus areas. While unit shipment may

remain small, each camera comes with at least 2 glass lens sets (vs. handsets which use

plastic) and usually has high specs requirement (higher ASP).



26 April 2016


7

Figure 17: Google Streetview – an app for 360 pics/videos Figure 18: An example of a lower end 360 degree camera

Source: Google, BOCOM Int’l Source: Google, BOCOM Int’l

Company profile: Well prepared to capture growth opportunities

Solid 2016 full year outlook

Sunny Optical targets handset camera module shipment growth of 15-25% YoY, and sees

dual camera modules as a key focus. For the optical component business, the company

targets handset lens set shipment growth of 20-30% YoY, after a very strong growth year

in 2015. Instead of focusing on volume growth, the company is shifting its focus to mix

improvement. For vehicle lens sets, the company expects strong growth to continue, and

targets shipment growth of over 30% YoY.

We expect gradual GM improvement to continue

Optical component GP now the biggest profit contributor and to grow further. Optical

components accounted for 48% of GP in 2015 (vs. 2013/14 31%/30%), and surpassed

optoelectronics products (camera modules) for the first time. We believe the increased

contribution is largely driven by 1) strong growth in handset and vehicle lens sets, 2)

margin improvement due to better product mix, better yield and utilization, and 3)

increased insourcing. With the lens set business likely to continue faster growth than

handset modules, we expect optical components’ contribution to continue to grow.

Increased R&D/capex to drive growth opportunities

Sunny Optical’s revenue grew at a 3 year CAGR of 39% in 2012-15, driven largely by

growth in the China smartphone market in the earlier years, then later by

handset/vehicle lens growth, customer market share gains, and improved product mix.

To sustain this healthy growth outlook, management plans to increase R&D and capex

spending to increase capacity and develop new growth drivers in the longer term.



26 April 2016


8

2015 R&D spending tripled vs. 2012, and to rise another 30% in 2016. Sunny Optical’s

R&D spending rose from RMB163m (4.1% of sales) in 2012 to RMB502m (4.7% of sales) in

2015. Based on the guidance provided by the company, we estimate the company plans

to spend about 5.1% of sales (or RMB671m) in 2016. The company owned 269 patents at

the end of 2015, compared with 164/239 patents at YE13/YE14. Government grants rose

from RMB20m in 2014 to RMB41m in 2015 which are accounted in other income.

Capex to rise to RMB600-700m to increase capacity and seek new opportunities. Sunny

Optical spent about RMB200-400m per year in capex in 2012-15, but will increase capex

spending to RMB600-700m in 2016. Of the total, about RMB100-200m will go to handset

lens sets for capacity increase and automation; RMB200m will go to increasing handset

camera module capabilities; RMB50m goes to capacity increase in vehicle lens sets, and

about RMB200m will go to development of new projects as the company has reached scale

in lens sets and smartphone growth slows further. Sunny Optical’s handset lens capacity

will reach 40m/month by YE16 (4 piece standard), vs. around 30m/month in YE15.

Figure 19: Sunny R&D and as a % to sales Figure 20: Sunny capex and as a % to sales

5.8%5.5% 5.2%

4.1% 4.3%4.7% 4.7%

5.1% 4.9%

0%

1%

2%

3%

4%

5%

6%

7%

0

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RMBm R&D % of sales

5.8%

3.7%

6.8%

6.1%

4.2%

3.3%3.8%

4.9%

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RMBm Capex % of sales

Source: company data, BOCOM Int’l Source: Company data, BOCOM Int’l

Strong customer base

A 1st

-tier customer base: Apart from strong R&D and partnerships which led to improved

product offering to customers, we believe its strong customer base is also one of the key

growth drivers for the company. In addition to its strong customer base in smartphones

which includes the top Chinese smartphone vendors (Huawei, Xiaomi, OPPO and others)

and Samsung, the company counts many of the first-tier OEMs (Continental, Delphi and

others) as customers in the auto space (vehicle cameras), as well as customers for other

applications such as GoPro (sports camera), Hikvision (surveillance cameras), and DJI and

Parrot (drones). Huawei is at the forefront of dual camera modules, and the company

targets to ship 140m units of smartphone in 2016 (+30% YoY), positive for Sunny Optical.

Competitive landscape: Narrowing the gap with the top lens supplier

Largan still the clear leader in handset lens, but Sunny gradually narrowing the gap.

Sunny Optical’s optical component revenue grew 62% YoY vs. Largan’s total revenue

growth of 16%, suggesting Sunny has gradually increased its share in the lens industry. As



26 April 2016


9

a proportion of total revenue (among Sunny optical component/Largan total/Genius

total), Sunny’s share rose from 11% in 2014 to 15% in 2015. Due to better yield and

product mix, Sunny’s optical component GM rose from 26.7% in 2014 to 35.1% in 2015

(vs. Largan 53.5% in 2014 to 57.4% in 2015), gradually narrowing the margin gap.

Target to become China’s #1 lens supplier longer term. Chinese and Korean (Samsung)

smartphone vendors account for a large majority of Sunny Optical’s handset lens set

shipment. At YE15, Sunny Optical’s market share among the Chinese smartphone vendors

was around 10% vs. Largan at 40%, suggesting Sunny’s handset lens shipment may see

significant growth over the next few years. We believe Sunny Optical is offering

competitive pricing to grow its share, and its Chinese handset customers and camera

module makers are also increasingly receptive to Sunny’s handset lens products.

Competitive outlook remains relatively favorable, in our view. We believe the lens set

industry is largely made up of 3-4 key vendors (Largan, Sunny Optical, Kantatsu (not

listed), and Genius) today, making it more favorable compared with other smartphone

component sectors. Margin has largely remained on the uptrend helped by specs

upgrade, with new growth drivers on the horizon. While Largan and Sunny continued to

grow, Genius’ 2015 revenue fell 17% YoY. We believe Kantatsu may become increasingly

competitive in the Apple supply chain, but this is unlikely to lead to intensifying

competition among China smartphone lens suppliers.

Figure 21: Lens supplier revenue (2011-15) Figure 22: Sunny lens revenue share growing

179 208 185 223 360

544 679

924

1,511

1,760

287 385

323 342 285

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Sunny Optical (lens only) Largan corporate Genius corporate

18% 16% 13% 11% 15%

54% 53% 65% 73%73%

28% 30%23% 16% 12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Genius corporate Largan corporate Sunny Optical (lens only)

Source: Company data, Bloomberg, BOCOM Int’l Source: Company data, Bloomberg, BOCOM Int’l

Figure 23: Sunny lens GM rising, but gap still wide Figure 24: Sunny/Largan increasing R&D spending

22.4 22.8 24.6 26.7

35.1

43.4 41.7

47.253.5

57.4

25.623.0

8.6 9.2 8.0

0

10

20

30

40

50

60

70

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Sunny Optical (lens only) Largan corporate Genius corporate

20.325.9

40.8

63.7

79.9

32.8 35.0

43.5

69.4

81.4

13.1

21.224.6

27.433.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Sunny Optical Largan Genius

Source: Company data, Bloomberg, BOCOM Int’l Source: Company data, Bloomberg, BOCOM Int’l



26 April 2016


10

Valuation: Well supported by strong visibility and outlook

Strong growth outlook; multiple growth drivers. Valuation is well supported by strong

earnings growth. We expect strong growth to continue, driven by 1) mix improvement

and continued growth in handset lens, 2) growth in vehicle lens sets and other

applications, and 3) rising camera module ASP on dual camera. After a period of strong

growth in 2012-15 with EPS CAGR of 25%, we forecast Sunny Optical’s EPS to see a CAGR

of 36% in 2015-17.

Initiate with BUY. Shares are trading at 19x 2016E P/E (vs. 5-year historical average of

16x and 1 SD above of 22x). Our 2016/17 EPS estimates are 1%/4% above consensus

largely due to a better revenue outlook. Our TP of HKD29 is based on 19x 2017E P/E (vs.

5-year average of 16x and 1 S.D. above historical of 22x), on ROE of 25.7%/27.1% in

2016/17. Initiate with BUY.

Figure 25: Sunny Optical share price and forward P/E Figure 26: Sunny Optical ROE outlook

0

5

10

15

20

25

30

35

-

5

10

15

20

25

30

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

share price (LHS) P/E (RHS)

1 SD above

average

1 SD below

6.3%

9.5%

12.8%

18.9% 18.5% 18.4%

21.6%

25.7%27.1%

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013 2014 2015 2016E 2017E

Source: Bloomberg, BOCOM Int’l Source: Company data, BOCOM Int’l

Figure 27: Peer comparison table Name Ticker Price Mkt. Cap –––PER (x) ––– –––PBV (x) ––– ––P/Sales (x) –– –––ROE (%)––– ––––ROA (%)––––

(USD b) FY15 FY16E FY15 FY16E FY15 FY16E FY15 FY16E FY15 FY16E

AAC Tech 2018 HK 55.0 8.7 17.8 15.4 4.9 4.1 5.8 4.8 30.5 28.9 20.9 20.1

Sunny Optical 2382 HK 23.2 3.3 27.2 19.0 5.4 4.5 2.0 1.6 21.6 25.7 11.6 13.0

Nidec 6594 JP 7,850 21.1 28.8 24.6 3.1 2.8 2.1 2.0 12.1 12.1 6.0 6.9

Largan 3008 TT 2,170 9.0 12.1 12.7 4.6 3.7 5.2 5.7 44.1 35.0 33.3 27.8

Genius 3406 TT 53.6 0.2 n.a. n.a. 0.8 0.7 0.6 0.8 (15.4) (0.6) (7.5) (0.3)

Mobileye MBLY US 39.4 8.6 127.2 57.7 16.6 13.3 35.6 25.6 15.0 26.4 13.5 24.2

HK smartphone chain

AAC Tech 2018 HK 55.0 8.7 17.8 15.4 4.9 4.1 5.8 4.8 30.5 28.9 20.9 20.1

Sunny Optical 2382 HK 23.2 3.3 27.2 19.0 5.4 4.5 2.0 1.6 21.6 25.7 11.6 13.0

BYD Elec 285 HK 4.59 1.3 9.4 7.5 0.8 0.7 0.1 0.3 9.0 10.4 4.6 5.4

Tongda 698 HK 1.54 1.1 12.2 8.3 2.2 1.9 1.5 1.1 18.7 23.3 9.9 10.9

Cowell 1415 HK 3.28 0.4 5.6 5.0 1.2 1.0 0.3 0.3 25.4 20.8 12.7 12.5

FIH Mobile 2038 HK 3.40 3.5 14.8 14.1 0.9 0.8 0.5 0.4 6.0 5.9 3.6 4.1

SMIC 981 HK 0.66 3.6 14.4 14.8 1.0 1.0 1.6 1.4 7.2 6.8 3.4 2.3

Hua Hong 1347 HK 8.22 1.1 9.6 10.2 0.7 0.7 1.7 1.5 7.6 7.0 5.8 6.9

Source: Bloomberg, BOCOM Int’l As of April 25, 2016; AAC, Sunny, SMIC, Tongda based on BOCOM estimates



26 April 2016


11

Risk:

Weakness from key customers. The growth outlook of the 1st

-tier Chinese

smartphone makers remains relatively healthy. However, if smartphone shipment of

these customers turns out to be softer than expected, our positive outlook on

handset camera and handset lens shipment may be at risk.

Intensifying competition in handset camera modules. Handset camera modules

competition remains intense as we currently expect handset camera module GM to

remain flat YoY despite product mix improvement. However, if competition turns out

to be more intense than expected, margins may be under pressure.



26 April 2016


12

Figure 28: Sunny Optical earnings forecast Sunny Optical (2382 HK)

RMB m 1H14 2H14 1H15 2H15 1H16E 2H16E 1H17E 2H17E 2012 2013 2014 2015 2016E 2017E 2018E

Revenue 3,836 4,590 4,651 6,045 5,441 7,760 6,575 9,525 3,984 5,813 8,426 10,696 13,201 16,100 19,103

YoY% 38% 52% 21% 32% 17% 28% 21% 23% 59% 46% 45% 27% 23% 22% 19%

COGS 3,275 3,863 3,929 5,004 4,545 6,416 5,438 7,880 3,243 4,846 7,137 8,933 10,961 13,317 15,717

% of sales 85% 84% 84% 83% 84% 83% 83% 83% 81% 83% 85% 84% 83% 83% 82%

Gross Profit 562 728 722 1,041 896 1,344 1,137 1,645 741 967 1,289 1,763 2,240 2,783 3,386

GM% 14.6% 15.9% 15.5% 17.2% 16.5% 17.3% 17.3% 17.3% 18.6% 16.6% 15.3% 16.5% 17.0% 17.3% 17.7%

OPEX 293 420 398 456 462 621 533 743 378 505 712 854 1,083 1,275 1,503

% of sales 7.6% 9.1% 8.6% 7.5% 8.5% 8.0% 8.1% 7.8% 9.5% 8.7% 8.5% 8.0% 8.2% 7.9% 7.9%

Operating Profit 269 308 324 586 434 723 605 902 363 462 577 909 1,157 1,507 1,883

OM% 7.0% 6.7% 7.0% 9.7% 8.0% 9.3% 9.2% 9.5% 9.1% 7.9% 6.8% 8.5% 8.8% 9.4% 9.9%

Pretax Profit 301 334 349 513 467 756 640 937 397 505 634 862 1,223 1,577 1,954

Taxes (benefit) 47 26 40 59 51 83 70 103 58 64 73 99 135 174 215

Net Profit 257 309 308 454 415 673 570 834 346 441 566 762 1,088 1,404 1,739

EPS (RMB) 0.24 0.29 0.28 0.42 0.38 0.62 0.53 0.77 0.35 0.44 0.52 0.70 1.00 1.30 1.60

EPS growth 18% 21% 19% 46% 35% 48% 37% 24% 72% 23% 19% 34% 43% 29% 24%

Optical components

Handsets/other revenue 377.8 569.7 712.8 913.8 855.4 1,233.6 1,026.5 1,468.0 1,149.5 849.7 947.5 1,626.6 2,089.0 2,494.5 2,953.8

YoY -14% 40% 89% 60% 20% 35% 20% 19% 12% -26% 12% 72% 28% 19% 18%

HoH -8% -33% 25% 28% -6% 44% -17% 43%

Vehicle lens units (m) 5.3 6.0 7.4 9.2 10.5 12.0 13.8 15.9 4.1 7.5 11.2 16.5 22.5 29.7 38.2

YoY 80% 31% 40% 53% 43% 31% 31% 32% 92% 84% 50% 47% 36% 32% 29%

HoH 15% 14% 23% 24% 15% 14% 15% 15%

ASP (RMB) 39 41 38 40 39 40 40 40 39 42 40 39 40 40 40

YoY -6% -1% -4% -4% 4% 1% 1% 0% -17% 7% -3% -4% 2% 0% 0%

HoH -6% 5% -9% -2% -1% 2% -1% 1%

Revenue 207 248 279 363 413 480 547 635 159 314 455 642 893 1,182 1,521

YoY 69% 30% 35% 46% 48% 32% 32% 32% 59% 97% 45% 41% 39% 32% 29%

HoH 8% 20% 13% 30% 14% 16% 14% 16% - - - - - - -

Optical comp revenue 585 818 992 1,277 1,268 1,714 1,573 2,103 1,309 1,164 1,403 2,268 2,982 3,676 4,475

YoY 4% 36% 70% 56% 28% 34% 24% 23% 16% -11% 21% 62% 31% 23% 22%

HoH -2% 40% 21% 29% -1% 35% -8% 34%

Optoelectronics products

Module shipments (m) 86 103 109 123 116 162 129 188 101 136 189 232 278 317 353

YoY 24% 54% 26% 19% 7% 32% 11% 16% 42% 35% 39% 23% 20% 14% 11%

ASP (Rmb) 36 36 33 34 35 37 38 39 25 32 36 35 36 39 41

YoY 19% 3% -10% -4% 7% 7% 8% 6% 47% 32% 11% -1% 2% 7% 6%

Opto product revenue 3,139 3,665 3,569 4,648 4,078 5,951 4,904 7,324 2,491 4,416 6,803 8,217 10,029 12,228 14,426

YoY 48% 60% 14% 27% 14% 28% 20% 23% 109% 77% 54% 21% 22% 22% 18%

HoH 37% 17% -3% 30% -12% 46% -18% 49%

Revenue breakdown

Optical components 15% 18% 21% 21% 23% 22% 24% 22% 33% 20% 17% 21% 23% 23% 23%

Optoelectronics products 82% 80% 77% 77% 75% 77% 75% 77% 63% 76% 81% 77% 76% 76% 76%

Optical Instruments 3% 2% 2% 2% 2% 1% 1% 1% 5% 4% 3% 2% 1% 1% 1%

GM by segments

Optical components 26.6% 26.8% 32.5% 37.1% 38.3% 39.7% 38.4% 39.8% 22.8% 24.6% 26.7% 35.1% 39.1% 39.2% 40.1%

Optoelectronics products 10.9% 12.0% 9.1% 10.0% 9.2% 10.5% 10.1% 10.5% 14.1% 12.6% 11.5% 9.6% 10.0% 10.3% 10.5%

Optical Instruments 35.9% 37.7% 35.2% 39.2% 37.0% 40.5% 38.8% 40.0% 34.1% 37.3% 36.8% 37.5% 38.7% 39.4% 39.5%

GP by segments

Optical components 28.9% 31.3% 47.5% 48.1% 54.2% 50.6% 53.1% 50.9% 41.9% 30.8% 30.2% 47.8% 52.1% 51.8% 53.0%

Optoelectronics products 63.6% 62.9% 47.8% 47.1% 41.9% 46.5% 43.5% 46.7% 49.3% 59.9% 63.2% 47.4% 44.6% 45.4% 44.7%

Optical Instruments 7.5% 5.8% 4.7% 4.8% 3.9% 2.9% 3.3% 2.4% 8.8% 9.3% 6.6% 4.8% 3.3% 2.8% 2.4%




26 April 2016


13

Appendix 1: Sunny Optical monthly shipment data

Figure 29: Sunny Optical monthly handset camera module shipments

12

9

13 15

17

19 19 18

16 17 18

14

18 17 18

16

18 20

19 20

22

20 19

22

16

12

16

0

5

10

15

20

25

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Tho

usa

nd

s

Thousands


Figure 30: Sunny Optical monthly handset lens set shipments

4 4 6 7 6

10 9

11

16 15 17

14

23 20 20 20 19

21

31 31 33

31

28

24 23

21

26

0

5

10

15

20

25

30

35

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Thousands


Figure 31: Sunny Optical monthly vehicle lens set shipments

1.0

0.8 0.8 0.9 0.8

0.9 0.9 0.9 0.9 1.0 1.1 1.1 1.1 1.1 1.1

1.3 1.4 1.4 1.4 1.4

1.7 1.6

1.5 1.5

2.3

1.5 1.6

0.0

0.5

1.0

1.5

2.0

2.5

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Thousands




26 April 2016


14

Company background

Sunny Optical is a leading optical manufacture in China for the handset, vehicle, and other consumer devices industries. Listed

on the main board of the HKEx since 2007, the company has five production sites in China with R&D center and local customer

support offices in North America, Japan, South Korea, Singapore and Taiwan.

Sunny Optical (2382.HK): Financial Statements

Profit & loss (RMB m) Year ended 31 Dec 2014 2015 2016E 2017E 2018E

Revenue 8,426 10,696 13,201 16,100 19,103

COGS 7,137 8,933 10,961 13,317 15,717

Gross Profit 1,289 1,763 2,240 2,783 3,386

OPEX 712 854 1,083 1,275 1,503

OP 577 909 1,157 1,507 1,883

Net interest expense (14) (16) (14) (14) (17)

Equity Method 1 (2) - - -

Others 70 (29) 80 84 88

Non-OP income 57 (47) 66 70 71

Pre-tax income 634 862 1,223 1,577 1,954

Tax 73 99 135 174 215

Net income (before minority) 561 764 1,088 1,404 1,739

Minority interest (5) 2 - - -

Net income 566 762 1,088 1,404 1,739

EPS 0.52 0.70 1.00 1.30 1.60

Balance sheet (RMB m) Year ended 31 Dec 2014 2015 2016E 2017E 2018E

Cash & cash equiv. 505 187 456 949 1,394

Marketable Securities 375 1,838 1,838 1,838 1,838

Account Receivables 2,389 3,003 3,706 4,520 5,363

Inventory 896 897 1,107 1,350 1,602

Others 41 93 93 93 93

Current Assets 4,204 6,017 7,200 8,750 10,290

Land/CIP - - - - -

PP&E, net 1,035 1,141 1,474 1,784 2,384

Investment securities - - - - -

Interest bearing asset - - - - -

Intangible asset 0 0 0 0 0

Other fixed assets 354 478 496 496 496

Total Assets 5,594 7,636 9,170 11,030 13,170

Accounts payable 1,745 2,914 3,597 4,387 5,205

Short-term debt 522 683 683 683 683

Others 31 142 142 142 142

Current Liabilities 2,297 3,739 4,422 5,212 6,030

Long term debt - - - - -

Others 47 52 88 105 122

Total Liabilities 2,343 3,791 4,510 5,317 6,152

Common stock 105 105 105 105 105

Retained earnings 3,143 3,726 4,542 5,595 6,899

Shareholder equity 3,248 3,831 4,647 5,700 7,004

minority interest 3 14 14 14 14

Total capital 5,594 7,636 9,171 11,030 13,170

Cash flow (RMB m) Year ended 31 Dec 2014 2015 2016E 2017E 2018E

Profit before tax 566 762 1,088 1,404 1,739

Depreciation/Amortization 215 246 316 340 -

Changes in work capital (940) 538 (213) (250) (259)

Forex gain//loss - - - - -

Others (23) 694 - - -

Cash flow from operations (183) 1,702 1,191 1,494 1,480

Capex (274) (411) (650) (650) (600)

Sales of tangible assets (340) - - - -

Investments (52) (1,510) - - -

Others 836 (11) - - -

Cash flow from investing 169 (1,932) (650) (650) (600)

Dividends paid (133) (170) (272) (351) (435)

New share issued - - - - -

Debt issuance/(repayment) 33 162 - - -

Other (90) (80) - - -

Cash flow from financing (190) (88) (272) (351) (435)

Other (1) 1 - - -

Net cash flow (204) (318) 269 493 445

Cash at beginning 709 505 187 456 949

Cash at end 505 187 456 949 1,394

Financial ratios Year ended 31 Dec 2014 2015 2016E 2017E 2018E

GM% 15.3% 16.5% 17.0% 17.3% 17.7%

OM% 6.8% 8.5% 8.8% 9.4% 9.9%

EPS growth 19.4% 34.0% 42.9% 29.0% 23.9%

P/E 36.4 27.2 19.0 14.7 11.9

P/B 6.4 5.4 4.5 3.7 3.0

P/S 2.5 2.0 1.6 1.3 1.1

EV/EBITDA 31.8 25.1 18.3 12.5 10.4

Dividend yield 0.7% 0.9% 1.4% 1.8% 2.2%

Net debt/equity 0.0 0.1 0.0 (0.0) (0.1)

ROE 18.4% 21.6% 25.7% 27.1% 27.4%

ROA 10.9% 11.6% 13.0% 13.9% 14.4%

ROIC 15.8% 18.5% 22.1% 24.0% 24.7%

Source: Company data, BOCOM Int’l estimates



26 April 2016


15

BOCOM International

11/F, Man Yee Building, 68 Des Voeux Road, Central, Hong Kong

Main: + 852 3710 3328 Fax: + 852 3798 0133 www.bocomgroup.com

Rating System

Company Rating Sector Rating

Buy: Expect more than 20% upside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 months

LT Buy: Expect more than 20% upside but longer than 12 months Market perform (“MP”): Expect low volatility

Neutral: Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 months

Sell: Expect more than 20% downside in 12 months

Research Team

Head of Research @bocomgroup.com Head of Research/ Strategy @bocomgroup.com

Raymond CHENG, CFA, CPA, CA (852) 2977 9393 raymond.cheng Hao HONG, CFA (852) 2977 9384 hao.hong

Banks/Network Financials Mid-Cap Industrial & Building Materials/ Automobile

Shanshan LI, CFA (86) 10 8800 9788 - 8058 lishanshan Angus CHAN (852) 2977 9392 angus.chan

Li WAN, CFA (86) 10 8800 9788 - 8051 wanli

Hannah HAN (86) 10 8800 9788 - 8055 hannah.han

Consumer Oil & Gas/ Gas Utilities

Summer WANG, CFA (852) 2977 9221 summer.wang Tony LIU (852) 2977 9390 xutong.liu

Shawn WU (852) 2977 9386 shawn.wu

Environmental Services Property

Wallace CHENG (852) 2977 9387 wallace.cheng Alfred LAU, CFA, FRM (852) 2977 9235 alfred.lau

Philip TSE, CFA, FRM (852) 2977 9220 philip.tse

Luella GUO (852) 2977 9211 luella.guo

Gaming & Leisure Renewable Energy

Alfred LAU, CFA, FRM (852) 2977 9235 alfred.lau Louis SUN (86) 21 6065 3606 louis.sun

Healthcare Technology

David LI (852) 2977 9203 david.li Chris YIM (852) 2977 9243 christopher.yim

Insurance & Brokerage Telecom & Small/ Mid-Caps

Jupiter ZHENG (852) 2977 9389 jupiter.zheng Zhiwu LI (852) 2977 9209 lizhiwu

Jennifer ZHANG (852) 2977 9250 yufan.zhang

Internet Transportation & Industrial

Yuan MA, PhD (86) 10 8800 9788 - 8039 yuan.ma Geoffrey CHENG, CFA (852) 2977 9380 geoffrey.cheng

Connie GU, CPA (86) 10 8800 9788 - 8045 conniegu Fay ZHOU (852) 2977 9381 fay.zhou

Mengqi SUN (86) 10 8800 9788 - 8048 mengqi.sun

http://www.bocomgroup.com/




26 April 2016

16

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Documents

Last Closing: HK$23.2 Upside: +25% Target Price: HK$29.0 ...researchreport.bocomgroup.com/2382-160426e.pdf · For handset lens sets, we expect market share gains to continue, helped