CMS(HK)Research Highlights

1H16preview: solid revenue/ EPS growth of 17%/32% YoY backed by pixel upgrade in CCM and handset/auto lens volume; 2H16E outlook: Dual-cam and vehicle lens adoption to boost 57% EPS YoY

    Improving product mix and share gains in handset lens and vehicle lens to support sustainable earnings growth in FY16-18E

    Upcoming catalysts from dual-cam product launches in 3Q16E; Reiterate BUY with SOTP-based TP of HK$30.0

    1H16Preview: revenue/NP to grow17%/32% YoY

    Sunny will announce 1H16results in mid-Aug, and we forecast the company to deliver robust revenue/NP growth of 17%/32% YoY, thanks to strong volume growth in handset lens/vehicle lens (+17%/44% YoY) and higher blended ASP in CCM (+10% YoY) despite flattish shipment. We believe Sunny 1H16GPM will improve to 16.7% (vs 15.5% in 1H15) due to better product mix. Strong CCM shipments in June (+30% YoY) announced yesterday would ease market concern on volume weakness in Jan-May (-5.8% YoY), and support our conservative FY16E shipment estimate of 12% YoY (vs guidance 15%-25% YoY). We slightly revised up our FY16-18E EPS, and believe product launches with dual-cam spec in 3Q16E to serve as a strong catalyst for the stock.

    Stronger 2H16E with ASP upsidein dual-cam/ handset lens

    We maintained our 2H16shipment forecast with accelerated volume growth in HCM/handset lens/vehicle lens (+22%/33%/27% YoY, vs +1%/17%/ 44% in 1H16), and we expect further ASP/margin upside from CCM (16/20MP and dual-cam) and handset lens (more rear-cam shipments to Samsung/ Huawei/ Vivo/ OPPO). In addition, following dual-cam handset lens R&D completion, we believe Sunny Optical will start adopting in-sourced dual-cam lens for its modules in late 2H16E, driving handset lens ASP and continued margin improvement.

    Our FY16-18E EPS are 6-9% above consensus; Reiterate BUY

    The stock now trades at 20.8x/16.0x FY16/17E P/E, 9% above its 3-yr mean and 40% premium to its peers, which we believe is justified due to its strong FY15-18E EPS CAGR of 33% and its stronger industry leadership. Our SOTP-based TP of HK$30implies 18.5x FY17E P/E. Catalysts include