not vested
Time To Buy Sunny Optical: Morgan Stanley By Shuli Ren
Dual camera lens supplier Sunny Optical (2382.Hong Kong) soared 4.6% amid heavy buying after long-time skeptic Morgan Stanley turned bullish on this stock, upgrading it to buy.
Morgan Stanley had been skeptical because it was worried Chinese smartphone manufacturers have built too many phones in 2016, thus affecting demand for components in 2017, and that Sunny Optical has become expensive.
This stock has advanced over 90% in the last year, trading at almost 20 times forward earnings.
What made analyst Yunchen Tsai change his mind?
The recent correction reflects concern about the impact of RMB depreciation and the Chinese smartphone inventory correction.
We believe:
1) frequent negotiation of contracts and key components price decline should mitigate the RMB depreciation impact; and
2) Sunny’s key exposure remains the top three Chinese OEMs – it should benefit from consolidation amid decelerating growth in the industry.
Dual camera – penetration to improve further within Chinese OEMs; yield improvement to lift margins: We increase dual camera volume by 27% to reflect a higher penetration rate; we expect Sunny to engage mainly in high-end dual cameras (i.e., those with an optical zoom).
We estimate that dual camera will contribute ~40% of Sunny’s CCM revenue in 2017. Our checks also show yield improvement in 2H16; we believe dual camera GPM will remain at 15% (vs. below 10% for single camera).
Handset lenses – continuing share expansion within Chinese OEMs: We believe Sunny can continue to expand its share in single camera lenses, since Largan dominates dual cam lenses and Apple.
We estimate that Sunny had an ~18% share within Chinese OEMs in 2016 and ~28% in 2017. Samsung’s allocation was weaker in 2H16 and hence could present upside in 2017 if anything changes.
Last and most importantly, Sunny Optical has fallen about 15% since its late November high, as investors took profit before the 2016 year-end.
Morgan Stanley’s price target of 42 Hong Kong dollars implies
21 times of its 2017 earnings estimate. Sunny has traded at between 20 and 23 times in 2015 and 2016. The bank’s price target suggests another 17% upside.
Competitor Largan Precision (3008.Taiwan) was little changed today. See also my December 20 blog “China’s Smartphone Market Will Be Very Crowded, Warns Morgan Stanley” and my August 31 blog “Who Has The Upper Hand: Largan Precision Or Sunny Optical?“.
Source: Barron's Asia
http://blogs.barrons.com/asiastocks/201 ... n-stanley/
It's all about "how much you made when you were right" & "how little you lost when you were wrong"