Sunny Optical's 1H20 net profit grew 22% YoY, largely in-line, while revenue grew 21% YoY, 16%/6% above our/market estimates, thanks to better HCM ASP offsetting HLS ASP decline. We think lower VLS/HCM guidance is well expected amid COVID-19 impact and macro uncertainties, and we are positive on HLS ASP/margin recovery in 2H20E driven by higher utilization and Xiaomi/Samsung restocking. We believe Sunny is well positioned to expand market share and regain growth sooner than peers in 2H20E, and Apple-led 3D cam upgrade cycle will be positive to Sunny’s outlook in FY21E. We raised FY20-22E EPS by 2-8% to reflect better HCM ASP and Samsung HCM upside. Reiterate BUY with SOTP-based TP of HK$148, implying 24.6x FY21E P/E.
- Conservative guidance due to COVID-19 and Huawei uncertainties. We think slower spec upgrade and weaker shipment in 2H20E is well expected as mgmt. discussed during investor day in June. Sunny targets VLS/ HCM shipment to grow 5%/10% YoY (from 20%/15%) in FY20E and guided stable ASP/margin for HLS/HCM in 2H20E. While HLS/HCM shipment will remain volatile due to seasonality in 3Q20E, we expect Xiaomi/ Samsung restocking will offset Huawei share loss impact in 2H20E. In addition, we expect cam upgrade cycle will re-accelerate in FY21E driven by Apple 5G iPhone with tri-cam/LiDAR 3D sensing and lower 5G cost pressure in 2021. We estimate HLS ASP will narrow decline to 4% YoY in 2H20E and return to 4% YoY growth in FY21E, while HCM ASP will grow 11%/2% YoY in 2H20/FY21E.
- Positive outlook on Samsung HCM share gain, VLS recovery and Vietnam/India expansion. Mgmt. expected to accelerate HCM gain share in Samsung’s mid/high-end models in 2H20/FY21E and target to become its No.1/2 supplier in the long term. In particular, Sunny will build new HCM plants for Samsung in Vietnam and expand capacity for Chinese brands in India. As for VLS, mgmt. expects both volume and margin will recover in 2H20E given demand recovery and overseas factory resumption.
- Leadership remains intact; Reiterate BUY on 2H recovery. We believe 2H20E weakness is largely reflected in price following recent correction. We recommend to look beyond the trough and accumulate the stock for multi/3D-cam and 5G/video-driven upgrade cycle in 2021. We lifted FY20-22E EPS by 2-8% mainly to reflect better HCM ASP and Samsung HCM share gain, and our SOTP-based TP of HK$148 implies 24.6x FY21E P/E.
