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CSCI-Technology-Sunny Opitcal (2382 HK)：Strong growth momentum, but likely priced in - 20171113

Strong growth momentum, but likely priced in

• AMS AG (AMS SE, NR) announced to collaborate with Sunny Opotech, a subsidiary of SunnyOp, to develop and market 3D sensing camera solutions for mobile device and China automotive OEMs.
• In addition, SunnyOp will be included in the Hang Seng Index from 10 Nov 2017, which is a positive vote for its market positioning, growth outlook and corporate governance, in our view.  
• We have nudged up our 17E/18E/19E revenue and profit estimates by 2.1%/3.5%/5.8% and 0.5%/17.3%/13.7% respectively and raised our DCF-based PT to HKD143.0 (from HKD98.0). Maintain Hold.

AMS collaboration allows SunnyOp to tap into 3D sensing. AMS is Apple Inc.’s major supplier of ambient light sensor (‘ALS’) for iPhone and wafer level lens (‘WLL’) of 3D sensing camera system for iPhone X. The collaboration with AMS will not only cement SunnyOp’s leadership in cameral modules but also in the rapidly emerging 3D sensing market in China, in our view. The partnership could strengthen the two parties’ value chain leadership, in view of AMS’ strong expertise in 3D sensing and WLL and SunnyOp’s strong suit in module manufacturing, Active Alignment (‘AA’) as well as relation with Chinese smartphone vendors.

Well on track to a strong year. SunnyOp’s total shipments of HLS/HCM/VLS during Jan-Oct 2017 grew 72.1%/26.5%/44.3% YoY respectively, which suggests that the company is not only well on track to beating its guidance of 45%-50%/20%-25%/35%-40% YoY and hence another strong year, but also gaining market share in all three segments.

A front-runner in next generation optics. SunnyOp is one of the few module suppliers which can provide both Time of Flight (‘ToF’) and Structured Light solutions for 3D sensing modules. With its industry-leading position in glass lens (casting and molding) for conventional cameral and plastic lens for smartphone, SunnyOp is well positioned to embrace the rapidly growing popularity of hybrid lens. Nevertheless, SunnyOp has made inroads into a broad range of advanced optics such as WLL (since 2013), 7P lens, periscope camera module with 3x optical zoom and MOC/MOB packaging, which makes it well prepared to ride on the next wave of optic spec upgrades.

Beyond smartphones. Having established its leadership in smartphone lens and cameral modules, SunnyOp has continued to expand its reach into non-smartphone applications. For example, the company has become the largest lens supplier for Hikvision (002415 CH, NR) and a major supplier for Dahua Technology (002236 CH, NR), the world’s No.1 and No.4 video surveillance solutions providers respectively. Besides, SunnyOp is also a major supplier camera modules and obstacle avoiding module for the UAV (unmanned aerial vehicle) market.  

Maintain HOLD. We have revised up our FY17E/18E/19E revenue and profit estimates by 2.1%/3.5%/5.8% and 0.5%/17.3%/13.7% respectively and raised our DCF-based price target to HKD143.0 (from HKD98.0), representing FY18E 36.5x PER and 13.0x PBR. SunnyOp’s growth potential and technology advantage have been reflected in its current valuation. In spite of long-term potentials, SunnyOp still lacks short-term drivers. Maintain Hold.