We raise our SOTP-based TP to HK$254.3 (32.0x FY22E P/E), following Sunny’s FY20 beat (record-high GPM) and strong product roadmap in next 2-3 years. We believe Sunny is well positioned to 1) strengthen leadership amid HCM/HLS industry consolidation and weakness from O-Film/Kantatsu/Genius, 2) benefit from auto recovery and strong ADAS demand (VLS 27% CAGR), and 3) capture opportunities in VR/AR, robotic vision and intelligent equipment. Backed by auto/ handset recovery and further share gain, we expect upside on Sunny’s guidance of stable ASP/GPM and 20-25%/15-20%/20-25% growth for HCM/HSL/VLS. We recommend to add on recent correction. Reiterate BUY.
- FY20 beat on record-high GPM despite de-spec headwinds. Sunny FY20 net profit grew 22% YoY to RMB4.9bn, 14%/13% above our/ consensus estimates, thanks to record-high GPM of 22.9% (+2.4ppt YoY) and FX gain of RMB225mn (vs RMB118mn loss in FY19). Given de-spec headwinds in 2H20, lower HCM/HLS ASP (-11%/-20% YoY in 2H20) led to flattish FY20 revenue, 14%/11% below our/consensus estimates. That said, we expect spec upgrade will resume in 2H21E (5G SoC cost down) and order win in iPad/iPhone will boost HLS ASP in the long term.
- Global No. 1 target on track; Positive guidance with stable ASP/GPM. We are impressed by mgmt’s confidence to achieve stable ASP/GPM for HCM/HLS despite FX volatility and de-spec trend. Sunny also guided 20-25%/15-20%/20-25% YoY for HCM/HSL/VLS in FY21E, which is conservative in our view. CAPEX will be RMB3bn in FY21E. RMB0.8bn/1bn/ 0.8bn will be invested in HCM/HLS/VLS, and RMB0.8bn will be for Yuyao HQ and Vietnam/India plants. Backed by further share gain ahead, we are confident Sunny will become global No.1 across HCM/HLS/VLS in 2021.
- Limited impact from semi shortage; iPad order win as catalyst in 1H21. Mgmt. expected limited impact from recent semi supply shortage, and semi cost hike can be transferred to clients. In addition, given recent weakness of Kantatsu and Genius, we believe Sunny is poised to expand into Apple supply chain in 1H21E, which will boost HLS shipment upside in FY21/22E.
- Reiterate BUY; Raise TP to HK$254.3. We recommend to look beyond near-term industry headwinds, and we are positive on Sunny’s outlook in 2021 backed by HCM share gain from O-Film, strong ADAS demand and iPad/iPhone order win. We maintain BUY and rollover our SOTP-based TP to HK$254.3 based on 32.0x FY22E P/E (vs prior FY21E target multiple).
