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Sunny Optical (2382 HK) - Positive outlook reassured by June shipment, Largan read-across

作者: Kevin CHEN,Clint SU
时间: 2019年07月11日
重要性: 一般报告
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摘要: Report title:Sunny Optical (2382 HK) - Positive outlook reassured by June shipment, Largan read-across
Analyst:Kevin CHEN,Clint SU
Report type:Company
Date:20190711
[Summary]

■ Our positive view on Sunny Optical is reassured by 1) its resilient June shipments, 2) upbeat industry outlook from Largan call
■ Huawei disruptions likely near-term; impacts to be alleviated by orders from other key customers
■ Reiterate BUY; share price correction buying opportunities

June shipments resilient amid Huawei disruptions

We reiterate our positive view on Sunny Optical, given 1) its resilient June shipments amid Huawei concerns, 2) upbeat industry outlook and read-across from Largan (3008 TT) results today. Despite an expected 40% overseas handset sales drop at Huawei, Sunny Optical’s June shipment growth was better-than-feared, with HLS +16%, HCM +22%, and VLS +35% YoY. HCM and VLS momentum remained strong. We believe the HLS slowdown was a near-term disruption form Huawei order cut, which would be recovered from its other key customers. 1H19 shipments were on track to the company’s unchanged guidance.

Largan earnings call paints favorable industry outlook

Largan’s 2Q19 earnings beat street expectations on GM improvement (69.6% in 2Q19, +5.4%pt QoQ) despite reporting weak June sales (-19% MoM/-10% YoY). Management sees limited impact from China-US trade conflicts, and expects MoM revenue growth in July. Largan also indicates new 5G handsets and under-display camera designs could drive further camera specs upgrade, as both demand larger aperture and lens usage. There could be new periscope designs in 2H19. Largan’s capacity is now fully utilized, and may further expand its facilities if needed. We believe camera specs upgrades will remain tailwinds for component suppliers in 2019-20, especially advanced solution providers such as Sunny Optical.

Maintain positive view; BUY on share corrections

Sunny Optical shares recovered in July, helped by eased US-China trade tension post the G20 meeting (see our July 2 report). The shares now trade at 21x/16x 2019E/20E P/E, which we view as undemanding vs. its 5-year average of 22x. GM may come under pressure in 1H19, which is likely priced-in. We expect further share upside driven by margin recovery in 2H19/2020. Maintain BUY with TP of HK$105 (20x 2020E P/E).

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