Company profile

Sunny Optical Technology, founded in 1984, is a leading global manufacturer of optical components and products. Specializing in optical and optoelectronic product design, R&D, production, and sales, its key offerings include optical components (mobile phone lenses, automotive lenses, surveillance lenses, etc.), optoelectronic products (mobile phone camera modules, 3D optoelectronic modules, automotive modules), and optical instruments (microscopes, smart inspection equipment).

Positive profit alert for 2024

The company has issued a positive profit alert for 2024, expecting full-year net profit to reach RMB 2.64¡V2.75 billion, marking a YoY growth of 140.0%¡V150.0%, slightly exceeding market expectations. This growth is primarily driven by the recovery of the global smartphone market, with shipments rising to 1.22 billion units, strong demand for high-end models, and AI integration in smartphone hardware, resulting in a 13.1% YoY increase in mobile phone lens shipments and improved product mix, boosting ASP and gross margins. Additionally, the development of intelligent driving assistance systems increased the adoption rate of automotive lenses, with the company's total automotive lens shipments reaching 102 million units, a 12.7% YoY increase, meeting the previous guidance.

In 1H 2024, the company achieved revenue of RMB 18.86 billion (+32.1% YoY) and net profit of RMB 1.08 billion (+147.1% YoY), with robust growth across smartphone, automotive, and AR/VR businesses. Optical components revenue grew to RMB 5.48 billion (+26.9% YoY), while optoelectronic products revenue reached RMB 13.19 billion (+35.5% YoY), driven by higher sales of smartphone camera and automotive modules.

Smartphone: focus on high-end products and product mix optimization

The recovery in the smartphone segment prompted a 13.1% YoY growth in smartphone lens shipments (1.32 billion units, greater than the previous guidance) but a 5.9% decline in smartphone camera module shipments (530 million units, a bit smaller than the previous guidance) due to a strategic shift away from low-end products. The improved product mix is expected to enhance ASP and gross margins, with projected 2024 full-year revenue of RMB 12.19 billion for optical components and RMB 23.84 billion for optoelectronic products. The integration of AI in smartphones is driving smarter and more personalized devices, stimulating replacement demand and accelerating camera upgrades, creating new opportunities for the camera module supply chain.

Automotive: Strong development of new energy vehicles drives further expansion of optical product applications

According to data from the China Association of Automobile Manufacturers, in 2024, the production and sales of new energy vehicles reached 12.89 million and 12.87 million units, respectively, representing year-on-year growth of 34.4% and 35.5%. The sales of new energy vehicles accounted for 40.9% of total new vehicle sales, an increase of 9.3 percentage points compared to 2023. With the ongoing electrification, digitalization, and intellectualization of the automotive industry, the demand for cameras in intelligent driving and cabin sensing systems continues to grow, creating new opportunities for manufacturers. Additionally, market requirements for the performance and quantity of perception hardware such as in-vehicle cameras and LiDAR are increasing, further driving the expansion of optical product applications. Furthermore, in February 2025, BYD launched its "Mass Intelligent Driving" strategy, making intelligent driving systems standard across its 100,000/150,000/200,000 RMB vehicle models, with partial adoption in models below 100,000 RMB. We believe this strategy may lead a new wave of industry competition in configurations, and the company, as a leader in in-vehicle lenses, stands to benefit from the penetration of intelligent driving solutions in lower-tier markets and the advancement of high-end intelligent driving.

Company valuation

Considering the recovery in consumer electronics demand and the company's continued push towards high-end smartphone products, which is expected to optimize product portfolio, coupled with the growth in automotive products driven by the penetration of intelligent driving, we anticipate revenue growth. Therefore, we forecast the company's revenue for 2024-2026 to be 36.51/42.54/48.19 billion RMB, with net profits attributable to the parent company of 2.43/3.19/3.94 billion RMB, corresponding to EPS of 2.28/3.02/3.72 RMB. The current stock price corresponds to a PE ratio of 36.0/27.2/22.0x. Overall, given the company's solid leading position, we apply a valuation slightly above the industry average, at 30 times the 2025 PE, resulting in a target price of 97.32 HKD per share. We initiate coverage with an "Accumulate" rating.

Exchange rate: HKD/RMB=0.93

Risk factors

1) The recovery in demand for the smartphone market falls short of expectations; 2) Delays in the delivery of automotive-related projects; 3) Intensified competition in the lens industry.

Financials

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