SUNNY OPTICAL TECHNOLOGY GROUP ( 2382.HK ): Margin concern

机构:申万宏源评级:BUY目标价:135港币Sunny Optical guides full-year 2017 net profit growth of 120%-plus YoY, and announced January mod

机构:申万宏源

评级:BUY

目标价:135港币

Sunny Optical guides full-year 2017 net profit growth of 120%-plus YoY, and announced January module shipments fell 9.1% YoY, lens shipments increased 19.6% YoY and vehicle lens deliveries grew 19.4% YoY. We believe both 2017 and January 2018 shipment results are in line with market expectations. We maintain our EPS forecast of Rmb2.61 for 17E (+124.0% YoY), but, with intensifying competition in both the lens and camera module businesses, we lower our forecasts from Rmb4.04 to Rmb3.63 in 18E (+39.0% YoY) and from Rmb6.00 to Rmb5.40 in 19E (+48.6% YoY). We lower our target price from HK$145 to HK$135, and maintain our BUY rating. 

Lower module gross margin. In 4Q17, Apple (AAPL:US) recorded a 1% YoY decline in iPhone shipments, while major Android brands witnessed double-digit shipment decline. For 18E, we expect downstream smartphone vendors will look to expand in the low-end to mid-range smartphone market, a view supported by Taiwan Semiconductor Manufacturing Co (2330:TT), which anticipates declining high-end smartphone shipments but growth in mid-range smartphones. Under these conditions, we assume Apple will begin promotion of a new LCD full-screen design iPhone with lower average selling price (ASP) in 2018. Such design is a strong symbol of de-spec period in 2018. Along with intensified competition from both Q Technology Group (1478:HK – N-R) and Shenzhen O-film Tech (002456:CH - BUY), we believe Sunny’s module business gross margin will decline from 2017 levels. We cut our single camera module gross margin assumption from 11% to 9% and our shipment growth rate from 15% to 10%. For its camera module business, we view 2018 as likely to be a challenging year for Sunny as new 3D sensing module demand will not start to make a significant contribution until 2019E. 

Lens business remains intact. We cut our lens shipment growth projection from 35% YoY to 25% YoY to account for increased competition in the market. We believe Sunny will continue to expand its lens market share among Android brands, considering wide adoption of dual-camera technology among domestic mid-range smartphones and future demand from 3D sensing modules. We believe the market is overly concerned about the potential hybrid lens threat from AAC Technologies Holdings (2008:HK – N-R). At present, we see no clear signals that smartphone makers will adopt hybrid designs. We believe investors should be focused on Sunny’s 75% YoY vehicle lens shipment growth in 18E as advanced driver assistance systems (ADAS) take off. 

3D sensing update. We are confident that Sunny will receive 3D module orders from Huawei starting in 2H18E. Recent investment in Ncphotonics gives it diffractive optical elements (DOE) capacity. We forecast 3D sensing modules will account for c.15% of total module shipments in 19E.   

Maintain BUY. We maintain our EPS forecast of Rmb2.61 for 17E (+124.0% YoY), but, with intensifying competition in both the lens and camera module businesses, we lower our forecasts from Rmb4.04 to Rmb3.63 in 18E (+39.0% YoY) and from Rmb6.00 to Rmb5.40 in 19E (+48.6% YoY). The company’s stock is trading at 25x 18E PE and 10x 18E PB. We lower our target price from HK$145 to HK$135, representing 30x 18E PE. With 20% upside, we maintain our BUY recommendation. 

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