BOCOM Int’l Research Company Update

Technology Last Close Target Price Upside 10 May 2018 HK$142.00 HK$200.00 +41%

Sunny Optical (2382 HK)

A strong set of monthly data across the board

 Strong handset lens shipments in April: Sunny Optical released April shipment Stock Rating data after market close on 9 May. Given the solid MoM growth across the three major product categories, we see the April data as ahead of market expectations. BUY Handset lens set shipments surged 61% YoY (or 17% MoM) to an all-time high of 70.8m units driven by market share gains and the ramp-up of new China 1-year stock performance smartphone models. Those of handset camera modules also grew 35% YoY (or 14% 190% HSI 2382 HK MoM) to 28.6m units, likely driven by market share gains in the mid-range. While 140% Sunny has continued to outperform its peers, we believe its growth is consistent 90%

with the recent pick-up across the China smartphone chain. 40%

-10%  Vehicle lens at new high; mix likely improving: Vehicle lens set shipments also hit May-17 Sep-17 Jan-18 May-18 a new high at 3.26m units, up 31% YoY, driven by market growth and market share Source: Bloomberg gains. With ADAS propelling growth for the vehicle lens segment, we expect its Stock data product mix to continue to improve, leading to rising ASP (+19% YoY per our 52w high (HK$) 171.60 forecast). Shipments of the other lens category also doubled (+103% YoY) to 6m 52w low (HK$) 55.65 units in April, a sign that demand from the other applications, such as security Market cap (HK$ m) 155,774.00 cameras and drones, is also picking up meaningfully. Avg daily vol (m) 8.18 YTD change (%) 42.14  Reiterate Buy: While we believe the positive data in April were mostly driven by 200d MA (HK$) 121.50

market share gain, it is a relief for the China smartphone supply chain given the Source: Bloomberg recent share price pressure. In our view, the strong sales of the Huawei P20 Pro also suggest that triple cam could become a bigger trend, a positive for the lens Chris Yim makers. Sunny’s shares are trading at 31x/20x 2018/19E P/E. Our unchanged TP of [email protected] (852) 3766 1803 HK$200.00 is based on 33x the average of 2018/19E EPS, on 47% EPS growth for

2018E. Xinhe Deng Financial highlights [email protected] Y/E 31 Dec 2015 2016 2017 2018E 2019E (852) 3766 1856 Revenue (RMB$ m) 10,696 14,612 22,366 32,592 48,312

YoY growth (%) 27 37 53 46 48 Net profit (RMB$ m) 762 1,272 2,902 4,253 6,462 EPS (RMB$) 0.70 1.17 2.66 3.89 5.92 YoY growth (%) 34 66 127 47 52 BOCOM International is P/E (x) 170.2 102.6 45.2 30.9 20.3 BVPS (RMB$) 3.5 4.5 6.9 10.1 15.0 proud to be a Gold P/B (x) 34.1 26.8 17.6 12.0 8.0 Sponsor of the 71st CFA Dividend yield (%) 0.2 0.3 0.6 0.9 1.3 Source: Company data, BOCOM Int’l estimates Institute Conference to

be held in Hong Kong.

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10 May 2018 Sunny Optical (2382 HK)

Figure 1: Sunny Optical earnings forecasts (RMB m) 1H15 2H15 1H16 2H16 1H17 2H17 1H18E 2H18E 1H19E 2H19E 2015 2016 2017 2018E 2019E Revenue 4,651 6,045 5,910 8,702 10,032 12,335 13,479 19,113 19,211 29,101 10,696 14,612 22,366 32,592 48,312 YoY% 21 32 27 44 70 42 34 55 43 52 27 37 53 46 48 COGS 3,929 5,004 4,922 7,010 7,962 9,602 10,515 14,922 14,858 22,698 8,933 11,932 17,564 25,437 37,555 % of sales 84 83 83 81 79 78 78 78 77 78 84 82 79 78 78 Gross profit 722 1,041 988 1,692 2,070 2,733 2,964 4,191 4,353 6,403 1,763 2,680 4,803 7,155 10,756 GM% 15.5 17.2 16.7 19.4 20.6 22.2 22.0 21.9 22.7 22.0 16.5 18.3 21.5 22.0 22.3 Opex 398 456 485 695 822 940 1,024 1,395 1,441 2,066 854 1,180 1,762 2,420 3,507 % of sales 8.6 7.5 8.2 8.0 8.2 7.6 7.6 7.3 7.5 7.1 8.0 8.1 7.9 7.4 7.3 Operating profit 324 586 503 997 1,248 1,793 1,939 2,796 2,912 4,337 909 1,501 3,041 4,735 7,249 OPM% 7.0 9.7 8.5 11.5 12.4 14.5 14.4 14.6 15.2 14.9 8.5 10.3 13.6 14.5 15.0 Pretax profit 349 513 553 894 1,398 1,920 1,993 2,849 2,972 4,396 862 1,446 3,318 4,841 7,368 Taxes (benefit) 40 59 88 87 237 167 239 328 357 528 99 175 404 567 884 Net profit 308 454 465 807 1,159 1,742 1,743 2,510 2,604 3,858 762 1,272 2,902 4,253 6,462 EPS (RMB) 0.28 0.42 0.43 0.74 1.07 1.59 1.60 2.30 2.38 3.53 0.70 1.17 2.66 3.89 5.92 EPS growth% 19 46 51 76 149 114 49 45 49 54 34 66 127 47 52 Optical components

Handsets/other revenue 713 914 877 1,202 1,294 1,668 1,746 2,301 2,305 3,015 1,627 2,079 2,961 4,048 5,320 YoY% 89 60 23 31 47 39 35 38 32 31 72 28 42 37 31 HoH% 25 28 (4) 37 8 29 5 32 0 31 - - - - - Vehicle lens units (m) 7.4 9.2 10.6 12.0 15.3 16.6 20.8 25.6 30.7 35.0 16.5 22.6 31.9 46.3 65.6 YoY% 40 53 44 32 44 38 36 54 48 37 47 37 41 45 42 HoH% 23 24 16 14 27 9 25 23 20 14 - - - - - ASP (RMB) 38 40 39 38 39 44 48 52 55 59 39 39 42 50 58 YoY% (4) (4) 3 (3) 1 16 22 17 16 14 (4) (0) 8 19 15 HoH% (9) (2) (2) (1) 2 15 8 8 7 7 - - - - - Revenue 279 363 414 463 602 739 997 1,325 1,701 2,075 642 877 1,341 2,322 3,775 YoY% 35 46 48 28 46 60 66 79 71 57 41 37 53 73 63 HoH% 13 30 14 12 30 23 35 33 28 22 - - - - - Optical comp revenue 992 1,277 1,291 1,665 1,896 2,406 2,744 3,626 4,006 5,089 2,268 2,956 4,302 6,369 9,095 YoY% 70 56 30 30 47 45 45 51 46 40 62 30 46 48 43 HoH% 21 29 1 29 14 27 14 32 10 27 - - - - - Optoelectronics products

Module shipments (m) 109 123 108 165 153 176 171 214 200 270 232 273 325 385 470 YoY% 26 19 (1) 35 42 7 11 22 17 26 23 18 19 18 22 ASP (RMB) 33 38 42 42 52 55 62 72 75 88 35 42 55 67 83 YoY% (10) 6 28 10 25 33 19 29 21 23 (1) 18 31 23 23 Opto product revenue 3,569 4,648 4,506 6,898 8,014 9,757 10,600 15,325 15,056 23,834 8,217 11,403 17,771 25,926 38,889 YoY% 14 27 26 48 78 41 32 57 42 56 21 39 56 46 50 HoH% (3) 30 (3) 53 16 20 (6) 30 (12) 32 - - - - - Revenue breakdown%

Optical components 21 21 22 19 19 20 20 19 21 17 21 20 19 20 19 Optoelectronics products 77 77 76 79 80 79 79 80 78 82 77 78 80 80 80 Optical Instruments 2 2 2 2 1 1 1 1 1 1 2 2 1 1 1 GM by segment%

Optical components 32.5 37.1 38.2 41.0 43.7 44.2 46.0 48.0 47.5 50.0 35.1 39.8 44.0 47.1 48.9 Optoelectronics products 9.1 10.0 8.7 11.7 12.7 13.4 13.7 14.2 14.5 15.0 9.6 10.5 13.1 14.0 14.8 Optical Instruments 35.2 39.2 38.4 42.0 42.2 51.3 44.0 46.0 45.0 47.0 37.5 40.4 43.2 45.1 46.1 GP by segment%

Optical components 47.5 48.1 53.1 44.2 43.6 43.4 45.5 43.6 45.8 41.0 47.8 47.5 43.5 44.4 42.9 Optoelectronics products 47.8 47.1 42.2 52.0 53.6 53.5 52.4 54.5 52.6 57.6 47.4 48.4 53.5 53.6 55.6 Optical Instruments 4.7 4.8 4.7 3.8 2.7 3.1 2.1 1.9 1.6 1.3 4.8 4.1 2.9 2.0 1.5 Source: Company data, BOCOM Int’l estimates

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10 May 2018 Sunny Optical (2382 HK)

Financial Statements Income statement (RMB$ m) Cash flow statement (RMB$ m) Y/E 31 Dec 2015 2016 2017 2018E 2019E Y/E 31 Dec 2015 2016 2017 2018E 2019E Revenue 10,696 14,612 22,366 32,592 48,312 Net Profit 762 1,272 2,902 4,253 6,462 COGS 8,933 11,932 17,564 25,437 37,555 Depreciation/Amortization 246 317 581 909 1,237 Gross Profit 1,763 2,680 4,803 7,155 10,756 Changes in work capital 538 (144) (1,133) (962) (1,479) OPEX 854 1,180 1,762 2,420 3,507 Forex gain//loss - - - - - OP 909 1,501 3,041 4,735 7,249 Others 694 171 86 - - Net interest expense (16) (16) (49) (44) (31) Cash flow from operations 1,702 1,616 2,436 4,200 6,220 Equity Method (2) (12) (16) - - Capex (411) (973) (1,766) (2,000) (1,800) Others (29) (26) 343 150 150 Sales of tangible assets - 53 - - - Non-OP income (47) (54) 278 106 119 Investments (1,510) (378) (114) (59) (91) Pre-tax income 862 1,446 3,318 4,841 7,368 Others (11) 37 193 - - Tax 99 175 404 567 884 Cash flow from investing (1,932) (1,260) (1,686) (2,059) (1,891) Net income (before minority) 764 1,271 2,914 4,275 6,484 Dividends paid (170) (228) (318) (725) (1,063) Minority interest 2 1 13 22 22 New share issued - - - - - Net income 762 1,272 2,902 4,253 6,462 Debt issuance/(repayment) 162 221 444 (200) (500) EPS (RMB) 0.70 1.17 2.66 3.89 5.92 Other (80) (74) (113) - - Cash flow from financing (88) (81) 12 (925) (1,563) Other 1 6 (2) - - Net cash flow (318) 280 760 1,215 2,766 Cash at beginning 505 187 467 1,227 2,442 Cash at end 187 467 1,227 2,442 5,208

Balance sheet (RMB $ m) Financial ratios As of 31 Dec 2015 2016 2017 2018E 2019E Y/E 31 Dec 2015 2016 2017 2018E 2019E Cash & cash equiv. 187 467 1,227 2,442 5,208 GPM (%) 16.5 18.3 21.5 22.0 22.3 Marketable Securities 1,838 2,128 2,113 2,113 2,113 OM (%) 8.5 10.3 13.6 14.5 15.0 Account Receivables 3,003 3,716 5,666 8,256 12,238 EPS growth (%) 34.0 65.9 126.8 46.6 51.9 Inventory 897 2,828 2,622 3,820 5,663 Others 93 178 9 9 9 P/E (x) 170.2 102.6 45.2 30.9 20.3 Current Assets 6,017 9,318 11,636 16,640 25,231 P/B (x) 34.1 26.8 17.6 12.0 8.0 Land/CIP - - - - - P/S (x) 12.2 9.0 5.9 4.0 2.7 PP&E, net 1,141 1,794 2,586 3,677 4,240 EV/EBITDA (x) 136.5 86.8 43.1 25.7 14.1 Investment securities - - 129 189 280 Dividend yield (%) 0.2 0.3 0.6 0.9 1.3 Interest bearing asset - - - - - Net debt/equity (x) 0.1 0.1 0.0 (0.1) (0.3) Intangible asset 0 0 392 392 392 ROE (%) 21.6 29.1 47.1 46.2 47.3 Other fixed assets 478 525 983 983 983 ROA (%) 11.6 13.2 21.3 22.7 24.5 Total Assets 7,636 11,637 15,726 21,881 31,125 ROIC (%) 18.5 24.6 39.8 40.7 44.4 Accounts payable 2,914 5,573 6,183 9,009 13,355 Short-term debt 683 904 1,348 1,148 648 Others 142 181 175 175 175 Current Liabilities 3,739 6,658 7,706 10,332 14,178 Long term debt - - - - - Others 52 65 502 502 502 Total Liabilities 3,791 6,723 8,207 10,834 14,679 Common stock 105 105 105 105 105 Retained earnings 3,726 4,790 7,383 10,911 16,310 Shareholder equity 3,831 4,895 7,489 11,016 16,415 Minority interest 14 18 31 31 31 Total liabilities and equity 7,636 11,637 15,726 21,881 31,125

Source: Company data, BOCOM Int’l estimates

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10 May 2018 Sunny Optical (2382 HK)

BOCOM International 10/F, Man Yee Building, 68 Des Voeux Road Central, Central, Hong Kong Main: (852) 3766 1899 Fax: (852) 2107 4662

Rating System Analyst Stock Ratings: Analyst Industry Views:

Buy: The stock's total return is expected to exceed that of the Outperform: The analyst expects the industry coverage corresponding industry over the next 12 months. universe to be attractive relative to the relevant broad market benchmark over the next 12 months. Neutral: The stock's total return is expected to be in line with that of the corresponding industry over the next 12 months. Market perform: The analyst expects the industry coverage universe to be in line with the relevant broad market Sell: The stock's total return is expected to be below that of the benchmark over the next 12 months. corresponding industry over the next 12 months. Underperform: The analyst expects the industry coverage Not-Rated: The analyst does not have conviction regarding the universe to be unattractive relative to the relevant broad outlook of the stock's total return relative to that of the market benchmark over the next 12 months. corresponding industry over the next 12 months. Broad market benchmark for Hong Kong is the Hang Seng

Composite Index, for China A-shares is the MSCI China A Index, for US-listed Chinese companies is S&P US Listed China 50 (USD) Index.

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10 May 2018 Sunny Optical (2382 HK)

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