Sunny reported June shipment data with MoM/YoY rebound for both handset lens (HLS) and vehicle lens (VLS), reversing YoY decline trend in past two months. We believe it was mainly driven by Samsung/Xiaomi restocking and automobile factory resumption in June. As stated in our upgrade note on 26 Jun, we believe Sunny is well positioned to gain share during downturn and regain growth sooner than peers in 2H20E. We suggest to accumulate the stock for demand recovery in 2H20E and 5G/video-driven upgrade trend in 2021. Maintain BUY with SOTP-based TP of HK$148 (25.2x FY21E P/E).
- HSL: MoM recovery to continue into 3Q20E. Sunny reported 17% YoY/ 21% MoM growth for handset lens (HSL) in June, which rebounded from YoY/MoM decline in April and May. We believe this was driven by Samsung order recovery and Xiaomi restocking for 3Q20E. In contrast, Largan reported 1% YoY/ 7% MoM revenue growth in June, and expected flattish MoM shipment for July/August. We believe Sunny will outperform Largan with MoM recovery in 3Q20E given Samsung flagship restocking and share gain from Huawei.
- HCM: Huawei and high-end demand remain weak in near term. Given ongoing high-end weakness and de-spec trend on 5G models, Sunny’s 3D sensing (other opto.) remained weak at 14% MoM in June (vs -31% MoM in May), while HCM slowed down to +1% YoY/ -9% MoM in June due to Huawei weakness in our view. Looking ahead, we expect HCM upgrade will re-accelerate in FY21E driven by 5G iPhone’s 3D sensing adoption and lower 5G cost pressure in 2021. We estimate HCM/HLS ASP to rebound 14%/6% YoY to Rmb44.23/50.3 in FY21E (vs -7%/-1.2% YoY decline in FY20E).
- VLS: 2Q delayed order to resume in 3Q20E. Sunny’s vehicle lens (VLS) posted +44% MoM/ -12% YoY in June, which continued recovery from +21% MoM/ -35% YoY in May. Given production resumption from overseas auto OEM since May, we expect 2Q20E delayed order will continue to support recovery in 3Q20E. Although Sunny’s VLS YTD shipment of -9% YoY is still below FY20E growth target of 20% YoY, we are positive on demand recovery and opportunities in ADAS, LiDAR, HUD, smart headlights in 2021.
- 2H20 recovery on track; Maintain BUY. We believe FY20E shipment weakness and de-spec impact are largely priced in, and we recommend to accumulate the stock for shipment recovery and upgrade trend in 2021. Maintain BUY and our SOTP-based TP of HK148 implies 25.2x FY21 P/E.
