Sunny Optical (2382 HK) 1H22 first take： in-line with profit warning; 2H22 guidance the key to watch

招银国际 CMBINTERNATIONAL 1166AuAg2u022g2022 CCMMBInBternaItniontaelGrlonbaalMtairokentsEaqulityGRelsoeabrcha|lCoMmpaanrykUpedattes|EquityResearch|CompanyUpdate HOLD(Maintain) SSuunnnyOnptiycalO(23p82tHiKc)al(2382HK) TargetPrice TargetPrice HK$108.60 HK$108.60 (PreviousTP (PreviousTP HK$108.60) HK$108.60) UUp/pDo/wDnsoidewnside (11.9%) (11.9%) CurrentPrice CurrentPrice HHK$K12$3.12023.20 11HH22f2irs2ttakef:iinr-lisnetwithtparokfitwear:ninign;2H-2l2inewithprofitwarning;2H22gguuidaindceathnekecyteowatthchekeytowatch Sunny’s1H22netprofitdeclineof49.5%YoYisin-linewithitsprofitwarning earlier(45-50%YoYdecline),mainlyduetosmartphoneweaknessandcamera Sunny's1H22netprofitdeclineof49.5%YoYisin-linewithitsprofitwarning earlier(45-50%YoYdecine),mainlyduetosmartphoneweaknessandcamera spectrnd1H2GPMcame de-spec 2H21,duetomarginpressureinbothHCM/HLS.Sunnyalsorecorded de-e.2 trend.1H22GPMcameinat20.8%,vs24.9%in1H21and21.5%in at20.%, in1H21and21.5%in in8vs24.9% 2H21,duetomarginpressureinbothHCM/HLS.Sunnyalsorecorded RMB142mngovt.grants(vsRMB48mnin1H21).Webelieve3Q22Eoutlookis RMB142mngovt.grants(vsRMB48mnin1H21).Webelieve3Q22Eoutlookis mixedforSunnysinceAndroid'songoingdestockingwillbeadragtoHCM mixedforSunnysinceAndroid’songoingdestockingwillbeadragtoHCM shipmentin3Q22E,whileiPhone14stockpull-inwilldriveHLSrecoveryin ChinaTechnology AlexNG(852)39000881 (852)39000881 alexng@cmbi.com.hk alexng@cmbi.com.hk LLilyiYlAyNG,YPhA.DNG,Ph.D (852)39163716 (852)39163716 lilyyang@cmbi.com.hk lilyang@cmbi.com.hk HanqingLI HanqingLI lihanqing@cmbi.com.hk lihanqing@cmbi.com.hk StockData StockData MktCap(HK$mn) 135,150.4 135,150.4 AktvCagp(3HKSmmtnh)st/o(HK$mn) 114.3 114.3 Ag3mthst/o(HKSmn) 52wHigh/Low(HK$) 2wHigh/Low(HK$) 25225.602/9.56.300/95.30 TotalIssuedShares(mn) 1097.0 TotalIssuedShares(mn)1097.0 Source:FactSet Souroe:FactSet SShahreahorldeinghSotrucltdureingStructure SunXuLtd 35.5% 35.5% SJunPXuLMidorganChase&Co 4.9% JPMorganChes Source:HKEx Souroe:HKEx 4.9% SShahreaPerrfeormPanecerformance Absolute Relative 1-mth 1-mth Absolute 101.80%.8% Relstive 114.45%.5% 3-mth 229.93%.3% 224.42%.2% 6-mth -34.5% -34.5% -19.1% Source:FactSet -19.1% ChinaTechnology AlexNG 3Q22E.Tradingat31.1x/27.3xFY22/23EP/E,wethinkthestock valued.Sunnywillhostananalystmeetingon16Aug,andwewilllookfor 3Q22E.Tradingat31.1x/27.3xFY22/23EP/E,wethinkthestockisfairly isfairly 2H22EguidanceandbusinessupdateonAR/VR/auto-relatedproducts. valued.Sunnywillhostananalystmeetingon16Aug,andwewilllookfor2H22EguidanceandbusinessupdateonAR/VR/auto-relatedproducts. declineonsluggishsmartphonedemandandde-spectrend,and2)less- than-expectedgrowthinautolens/moduleshipment.NetprofitofRMB1.4bn 11HH222in-2linewinith-plroifnitwearninwg:iHtLhS/HCpMrmoargfinitundwerparerssnurieng;HLS/HCMmarginunderpressure.11HH222rev2enureewvaseRnMBu1e7.0bwn,adowsn1R4.4M%YBoY1,d7ue.0tob1)nsh,ipmdeont/wASnP14.4%YoY,dueto1)shipment/ASPdeclineonsluggishsmartphonedemandandde-spectrend,and2)less-than-expectedgrowthinautolens/moduleshipment.NetprofitofRMB1.4bn(-49.5%)isin-linewithpreviousprofitwarning,while1H22GPMdeclinedto 20.8%,down4.1pptsYoY,duetolowerutilizationandintensecompetition (-49.5%)isin-linewithpreviousprofitwarning,while1H22GPMdeclinedto M 20.8%,down4.1pptsYoY,duetolowerutilizationandintensecompetition iinnbobthoHStLh/HCHMSsegLm/eHntsCMsegments.5 July’sshipmentdataearlier,withHLS/VLSrecoveryof23%/4%MoMand JJulushlipmsehnt:iHpSLmMoeMnretco:veHrySandLVLMSsoolidMgrowrteh.cSuonnvyreeprorytedandVLSsolidgrowth.Sunnyreported July'sshipmentdataearlier,withHLS/VLSrecoveryof23%/4%MoMand foriPhone14launchinSep.Whilewebelievedemandweaknessand HCMdeclineof9%MoM,WebelieveSunny'sweakHCMshipmentreflected HCMdeclineof9%MoM.WebelieveSunny’sweakHCMshipmentreflectedAndroidongoingdestockingandHLSrecoverywasdrivenbyorderpull-in foriPhone14launchinSep.Whilewebelievedemandweaknessand sequentialrecoveryinto4Q22EbackedbyiPhone14andmarketsharegain. iinnvevntoeryndet-ostorcykingdwiellp-esrsitsotinc3kQ2i2nEg,weawreiplolsitivpeeonrHsSiLstin3Q22E,wearepositiveonHSL adoptionanditsgloballeadingmarketposition. Inaddition,weremainpositiveonVLS’ssolidgrowthgivenrisingADAS sequentialrecoveryinto4Q22EbackedbyiPhone14andmarketsharegain.Inaddition,weremainpositiveonVLS'ssolidgrowthgivenrisingADAS adoptionanditsgloballeadingmarketposition.  Valuation/Keyrisks.WhilewearepositiveonSunny’sproductroadmap Valuation/Keyrisks.WhilewearepositiveonSunny'sproductroadmap (79%ofsales,vs8%forauto-related)willcontinuetoweighonearnings andtechnologyleadership,Sunny’shighexposuretohandsetsegment (79%ofsales,vs8%forauto-related)willcontinuetoweighonearnings amidsmartphoneslowdownandmacrouncertaintiesin2H22E.Tradingat 31.1x/27.3xFY22/23EP/E,wethinkthestockisfairlyvalued.Wewillreview amidsmartphoneslowdownandmacrouncertaintiesin2H22E.Tradingat 31.1x/27,3xFY22/23EP/E,wethinkthestockisfairlyvalued,Wewillreview ourforecasts/TPafterearningscallon16Aug. EarningsSummary ourforecasts/TPafterearningscallon16Aug. (YE31Dec) (YE31Dec) FY20A FY20A FY21A FY21