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More Upside for Sunny Optical?By Isabella Zhong
Sunny Optical (2382.HK) shares have rallied an eye-watering 158% over the past year but Daiwa says the stock still has legs to run higher.
Analyst Kylie Huang, who has a buy rating on Sunny Optical, has lifted her target price on the stock from HKD76 a share to HKD80 a share, which implies 15% upside.
Huang argues favorable industry trends are set to continue, while Sunny Optical is well positioned for multi-cams in smartphones and cars:
For handset lens sets (HLS) and handset camera modules (HCM), Sunny expects spec upgrades including dualcams, large aperture, wide FOV, ultra-thin size, and miniaturisation to continue in coming years.
It also expects folded-lens designs for 3x optical zoom to arrive in 2018. For HCM, Sunny has successfully developed industry-leading advanced packaging technologies (MOB and MOC) to reduce product size and improve production yield, which should benefit from smartphone design trends and enhance Sunny’s leading position, in our view.
In addition, Sunny is positive on 3D-sensing opportunities in smartphones with a potential market size of USD 5-6bn in the long term, and views itself as well-positioned due to its turnkey solution offering, which echoes our earlier view that the rising trend of biometric ID and 3D sensing in smartphones should be an extra earnings driver for Sunny in the coming years, which we have not factored into our estimates.
For vehicle lens sets (VLS), Sunny is positive on the long-term prospects and expects the number of VLS per car to increase to 6-8, if not higher, from less than one currently, driven by the increasing penetration of ADAS and the rising trend of self-driving cars.
Sunny also highlighted that it has various solutions (cameras, LiDAR, IR-cams, etc.) and targets to expand its market share in vehicle lenses in the coming years (vs. c.30% market share in 2016). Sunny Optical’s margins could also expand in coming years.
Sunny reiterated its 2017 shipment guidance and is positive on the gross margin outlook due to favorable industry trends. Driven by spec upgrades and better product mix, we expect Sunny to expand its gross margin to 20-22% in 2017-19, up from 18.3% in 2016.
Sunny Optical shares trade at 28 times forward earnings, which is well above its five year average of 16 times. The camera maker is expected to grow earnings at an average 47% annual pace over the next three to five years.
Source: Barron's Asia
http://www.barrons.com/articles/more-up ... 1498198111
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