We believe negative impacts from Huawei ban and cam de-spec in 2H20E have been mostly priced in as Sunny’s corrected 15%+ in past two months. Backed by Xiaomi/OPPO restocking and Samsung recovery in 4Q20E, we believe Sunny’s HCM/HLS/VLS shipment will likely beat mgmt. guidance of 10%/5%/10% YoY in FY20E (vs 21%/18%/3% YoY YTD). In addition, given ongoing high-end demand weakness, we think Sunny is well positioned to accelerate share gain and benefit from strong pipeline from Xiaomi/Oppo/Samsung in 4Q20E. We slightly revised TP to HK$146.1 after lowering FY20-22E EPS by 1-6% for slower ASP upgrade but higher shipment. We suggest to accumulate on recent weakness, as we expect shipment upside and Apple-led 3D-cam upcycle cycle will be positive to the stock in 4Q20E.
- Solid HCM/HLS despite Huawei ban; VLS recovery on track. Sunny delivered solid Sep shipment with HCM/HLS up 22%/16% YoY and -3%/ +3% MoM, driven by Chinese brands restocking and Samsung recovery despite Huawei order slowdown. Sunny’s VLS (vehicle lens) accelerated with 32% YoY/ 18% MoM growth in Sep (vs +16% YoY in Aug) as global automobile production continued to recover in 4Q20E.
- Expect 4Q20E restocking to beat shipment guidance. Despite Huawei ban impact to emerge in 4Q20E, we expect Xiaomi/Oppo’s strong orders on share gain and Samsung overseas demand will offset Huawei decline. As of 9M20, Sunny’s HCM/HLS shipment grew 21%/18% YoY, well ahead of full-year guidance of 10%/10% YoY. To reflect weaker demand of Chinese flagship models, we forecast weaker HCM/HLS ASP of -8%/+5% YoY in 2H20E (vs -18%/+13% YoY in 1H20).
- Camera spec upgrade to resume in 1Q20E; iPad order win as catalyst in 1H21E. While non-5G functions will remain under cost pressure in 4Q20E, we expect camera upgrade will resume in 1H21E after mass production of Qualcomm Snapdragon entry-level 4-series 5G SoC in 1Q21E and iPhone 12 adopting multi-cam/LiDAR 3D camera. We also see potential order wins of iPad/iPhone will boost HLS shipment upside in 2021E.
- Accumulate ahead of 3D-cam/ToF cycle in 2021; Reiterate BUY. We believe Huawei impact is largely priced in after recent correction, and Apple-led 3D upgrade cycle will be positive to Sunny in FY21E. We recommend to accumulate the stock for multi/3D-cam and 5G/video-driven upgrade cycle in 2021. Our new SOTP-based TP of HK$146.1 implies 24.7x FY21E P/E.
