3 OCTOBER 2013
HINITIATIONONG KONG / T ECHNOLOGY HARDWARE & EQUIPMENT SUNNY OPTICAL TECHNO LOGY 2382 HK
HOW WE DIFFER FROM CONSENSUS MARKET RECS TARGET PRICE HKD8.30 TARGET PRICE (%) (15.8) POSITIVE 17 HOLD CLOSE HKD8.26 EPS 2013 (%) (12.8) NEUTRAL 8 UP/DOWNSIDE +0.5%
HKD % EPS 2014 (%) ( 27.3) NEGATIVE 1
Camera module leader KEY STOCK DATA YE Dec (RMB m) 2012A 2013E 2014E 2015E
Revenue 3,984 5,860 7,373 9,196 n Beneficiary of Chinese smartphone boom We initiate coverage on Sunny Optical with a HOLD rating and target Rec. net profit 346 410 460 524 price of HKD8.3. Sunny is China’s leading optical components and Recurring EPS (RMB) 0.36 0.41 0.44 0.50 products manufacturer and the largest camera module producer for EPS growth (%) 26.5 14.7 5.5 14.0
smartphones in China. While we expect it to benefit from the Chinese Recurring P/E (x) 18.1 15.8 15.0 13.1 smartphone boom, we think most positives are now priced in. Dividend yield (%) 1.5 1.8 2.0 2.3
n Looking for vertical integration in lenses EV/EBITDA (x) 11.6 8.3 6.2 5.0 Sunny aims to improve its high-resolution handset lens production Price/book (x) 2.9 1.8 1.6 1.4 and R&D ability, and targets 40% in-house production for handset Net debt/Equity (%) (21.8) (35.9) (33.0) (39.1)
lens and 35% for 5MP+ lenses. With more design difficulty in 8MP+ ROE (%) 19.3 16.0 13.6 13.9 lenses, it may take time for the company to improve yield rates. Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
12 n Positives in the price; we prefer Largan 147 10 Sunny’s share price has surged 60% ytd and outperformed the 97 market 61%. The stock is trading at 15.8x/15.0x our FY13/14E 8 47 earnings, a premium to peers. We think the risk-reward is less 6 attractive. We prefer Largan Precision (3008 TT; BUY; CP: TWD990; 4 (3) (HKD) Sunny Optical Technology Rel to MSCI Hong Kong (%) TP: TWD1155) in the phone camera space for its better profitability Share price performance 1 Month 3 Month 12 Month and growth outlook. Absolute (%) (4.1) (16.1) 92.1 n Consensus estimates look aggressive Relative to country (%) (9.0) (25.0) 80.4 We believe Sunny will benefit from pixel migration. Nevertheless, Next results March 2014
more R&D and capex expansion may weigh on margins in the near Mkt cap (USD m) 926 term. Our earnings projections are below consensus as we factor in 3m avg daily turnover (USD m) 10.3 the recent share dilution and lower margin assumptions. Free float (%) 78
Camera module shipments and % of internal lens supply Major shareholder Sun Xu Ltd. (42.15%) 12m high/low (HKD) 11.56/4.18 (m units) Internal handset lens shipment (LHS) (%) 40 % of camera module shipment (RHS) 80 3m historic vol. (%) 58.5 ADR ticker - 60 ADR closing price (USD) -
20 40 Issued shares (m) 869
20 Sources: Bloomberg consensus; BNP Paribas estimates
0 0 1H11 2H11 1H12 2H12 1H13 2H13E 1H14E 2H14E
Sources: Bloomberg consensus; BNP Paribas estimates
Laura Chen [email protected] +886 2 8729 7052
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PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES (TAIWAN) LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 18
Sunny Optical Technology 2382 HK Laura Chen
Investment thesis Catalyst We believe Sunny will benefit from smartphone growth in Sunny has become more aggressive in its move to higher China and other emerging market, as well as pixel migration. resolution products and vertical integration in lenses to We expect Sunny Optical to enjoy an earnings CAGR of 13% enhance its margins and ASP. In 1H13, 17.7% of its camera during 2013-2015. While it is already the biggest camera modules shipments were over 8MP (from about 5% in 2012) , module supplier in China, it also aims to vertically integrate in which we estimate will reach 20%+ in 2H13. lenses and is looking for more applications in different markets. The company has become more aggressive in Nonetheless, the current in-sourced lens for Sunny’s camera capex expansion from this year as it looks to migrate to modules is mainly 5MP. Due to the capex expansion from higher resolution products. Nevertheless, there may be a 2013, this mix may weigh on margins before the technology learning curve to improve yield rates and quality. We are also fully migrates. We therefore forecast a gradual decline in seeing more margin pressure in the near term due to rising GM/OPM to 15%/7% in FY15, from 18.6%/9% in FY12. costs. We project a gradual trend down in OPM during 2012- 2015. Risks to our call Key downside risks are: 1) weaker-than-expected Trading at the high end of its historical average and industry smartphone demand, especially in China; and 2) faster-than- PER, we think all the positives are already priced in. Our TP expected ASP decline that outpaces the technology of HKD8.3 is based on a 2014 PER target of 15x, which we migration. Upside risks are stronger-than-expected demand think is reasonable relative to peers (see Exhibit 10) and it is from China and international customers and higher-than- also at the stock’s low-end PER of past one year. expected revenue contribution from 8MP+ products.
Company background Key assumptions
Sunny Optical is China’s leading optical components and 2013E 2014E 2015E products manufacturer. It is currently the largest camera (m units) (m units) (m units) module producer for smartphones in China. Its major Handset lens sets (exc. Internal) 26.2 39.4 37.3 customers include Huawei, Lenovo, Oppo, Ginoee and Tinno. Handset camera module 149.5 186.8 215.3 In addition to camera modules, it produces optical components and instruments.
Source: BNP Paribas estimates Principal activities, Revenue by product segment 2013E Earnings sensitivity
----- Base ------Best ------Worst ----- Optical Optical 2013 2014 2013 2014 2013 2014 instrument 3.6% components Sales (RMB b) 5.86 7.37 5.97 7.55 5.75 7.19 18.7% Change (%) 1.8 2.4 (1.8) (2.4)
Camera module spmt gwth 54.70 25.00 58.70 29.00 50.70 21.00 Change (%) 4 4 (4) (4)
OPM 7.90 7.20 8.90 8.20 6.90 6.20 Optoelectronic Change (%) 1 1 (1) (1) porducts 77.7% EPS (RMB) 0.41 0.44 0.47 0.5 0.36 0.37 Change (%) 13.8 15.9 (13.3) (15.3)
Key executives Source: BNP Paribas estimates
Title A 4% increase/decrease in handset camera module Liaoning Ye Chairman shipment growth, others unchanged, will Yang Sun CEO increase/decrease the FY13/14 EPS forecast by Kewu Dong Vice President 1.7%/2.3%, and sales by 1.8%/2.4%.
The effect of OPM changes is larger. A 1 % increase/decrease in OPM alone would increase/decrease FY13/14E EPS by 11.8%/13.3%. http://www.sunnyoptical.com/
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Sunny Optical Technology 2382 HK Laura Chen
Leading camera module maker in China
We initiate coverage of Sunny with a HOLD rating and target price of HKD8.3. Sunny is China’s leading optical components and products manufacturer. Founded in 1984 and listed in 2007, it is currently the largest camera module producer for smartphones in China. Its top five customers are Huawei, Lenovo, Oppo, Ginoee and Tinno, accounting for 30%-35% of sales in 1H13. It designs and manufactures three major kinds of products, namely optical components (such as glass spherical and aspherical lenses, handset lens sets, plane products, vehicle, infrared and other lens sets), optoelectronic products (such as handset camera modules, smart TV video modules, security cameras and other optoelectronic modules) and optical instruments (such as microscopes, optical measuring instruments and various optical analytical instruments). Better R&D capability, increasing vertical integration, economies of scale and bond relationships with Chinese top-tier handset makers are key strengths that we believe will ensure strong growth for Sunny through 2015.
EXHIBIT 1: Product segment summary
Segments Optoelectronic products Optical components Optical instruments Products and applications Camera modules Lens (DSC, handset, Microscopic / Analytical (handset, tablet, smart TVs) vehicle) instruments Sales contribution in 1H13 76.1% 20.2% 3.7%
Gross margin in 1H13 12.1% 22.8% 36.7%
Key customers Huawei DSC: Samsung, Carl Zeiss ZTE Panasonic, Nikon, Sony Optika Coolpad Amscope Handsets : Sharp, Lenovo Olympus Truly, Kerr, Global Oppo Optics
Source: Company
EXHIBIT 2: Revenue breakdown by application - increasing contribution from handset-related products EXHIBIT 3: Product summary by revenue
(RMB m) Handset related Digital camera related (RMB m) Optical components Optoelectronic products 4,500 Vehicle lens sets Optical instrumuents 7,000 Optical instruments 4,000 Others 6,000 3,500 5,000 3,000 4,000 2,500 2,000 3,000 1,500 2,000 1,000 1,000 500 0 0 2010 2011 2012 1H13 2010 2011 2012 2013E 2014E Source: Company Source: Company; BNP Paribas estimates
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Sunny Optical Technology 2382 HK Laura Chen
Beneficiary of smartphone boom
Thanks to a promising smartphone growth outlook for Chinese makers, we expect Sunny to enjoy an earnings CAGR of 13% during 2013-2015. With 29 years of experience in optical product design and manufacture, Sunny caught up with the trend of increasing demand for phone camera lens and modules. While it already is the biggest camera module supplier in China, it also aims to vertically integrate in lenses and is looking for more applications in different markets. The company has become more aggressive on capex expansion since 2013. While we are positive on its growth potential, we are also seeing more margin pressure in the near term due to rising costs. Meanwhile, its internal lens supply is mainly in 5MP and below; with more demand for higher resolutions, we think Sunny’s margin expansion may take longer, until we see a more substantial pick-up on its lens business.
EXHIBIT 4: Smartphone shipment growth in China EXHIBIT 5: Sunny Optical’s camera module shipments Sunny Optical camera module shipment y-y China smartphone shipment y-y (m units) (%) (m units) (%) 500 200 200 70 180 450 180 60 400 160 160 50 350 140 140 300 120 120 40 250 100 100 30 200 80 80 150 60 60 20 100 40 40 10 50 20 20 0 0 0 0 2011 2012 2013E 2014E 2011 2012 2013E 2014E
Sources: Company; BNP Paribas estimates Sources: Company; BNP Paribas estimates
Hoping for pixel migration and vertical integration Given the assembly nature of the business and rising ASP pressure, optoelectronic products, mostly camera modules, have the lowest gross margin (12-13%, compared with the corporate average of 15%+). Sunny is now more aggressive in moving to higher resolution products and vertical integration in lenses in order to enhance its margin and ASP. The 1H13 shipment volume of 5MP+ accounted for 49.2% of total handset camera modules shipped, from 28.4% in 2012. In this category, 17.7% is for 8MP+ modules, from c5% in 2012. Sunny has also started to supply 8MP/13MP modules for Korean handset maker Pantech (not listed) and some Chinese customers. In 2013, it stated that it had qualified as Samsung’s (005930 KS) handset lens supplier. The company also started to supply 5MP and 8MP lens sets to Samsung in 2Q13. Currently, volume is about 1.2m units per month. We think it is difficult to reach its objective of 20m units in 2013.
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EXHIBIT 6: Internal lens shipments and % of total camera EXHIBIT 7: Internal lens shipments’ % of total camera module shipment module shipments vs GM trend
(m units) Internal handset lens shipment (LHS) (%) (%) Gross margin (RHS) (%) 35 % of camera module shipment (RHS) 45 45 % of camera module shipment (LHS) 25 40 40 30 20 35 35 25 30 30 15 20 25 25 20 20 15 10 15 15 10 10 10 5 5 5 5 0 0 0 0 1H12 2H12 1H13 2H13E 1H14E 2H14E 1H12 2H12 1H13 2H13E 1H14E 2H14E Sources: Company; BNP Paribas estimates Sources: Company; BNP Paribas estimates
Margin may under pressure in the near term Due to the product transition to more higher-end camera modules and lenses, the company may take some time to overcome the learning curve and improve its yield rate and quality. We therefore forecast a gradual decline in its GM/OPM to 15%/7% in FY15, from 18.6%/9% in FY12. We believe Sunny will benefit from smartphone growth in China and other emerging markets, as well as pixel migration. Nevertheless, more R&D and capex expansion may weigh on margin upside in the near term. We project a gradual trend down in OPM during 2012-2015.
Positives in the price, waiting for a better entry opportunity Sunny’s share price has surged 60% ytd and outperformed the market by 61%. The stock is trading at 16x/15x our FY13/14 earnings estimates, a premium to its industry peers. We think all the positives are already priced in. Our earnings projections are lower than consensus as we think it may take time for the company to reach a satisfactory yield rate on high resolution cameras and lenses. We also factor in its recent 9.7% share dilution given the fund raising. Our target price of HKD8.3 is based on 15x our 2014 EPS estimate (which is roughly in line with its historical one- year average PER, vs our target PER of 18x for Largan (3008 TT, BUY, CP: TWD990) and 17x for AAC Technology (2018 HK, BUY, CP: TWD35.4). We think Largan and AAC deserve to trade at a higher PER than Sunny considering their better ROE and margin. In the lens module/camera module industry, we prefer Largan given its leading global position, strong execution, stable yield rate and high margin.
Key risks to our view are: 1) weaker-than-expected smartphone demand, especially in China; and 2) a faster-than-expected ASP decline that outpaces the technology migration. Upside risks are stronger-than-expected demand from China and international customers and higher-than-expected revenue contribution from 8MP+ products.
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EXHIBIT 8: 12-month forward P/E band EXHIBIT 9: 12-month forward P/B band (HKD) (HKD) 12 12 2.5x 22x
10 10 2.0x
8 16x 8 1.0x
6 6 10x 1.5x 4 4 0.5x 2 4x 2
0 0 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Sources: TEJ; BNP Paribas estimates Sources: TEJ; BNP Paribas estimates
EXHIBIT 10: Peer valuation comparison
Company Ticker Price ------P/E ------EPS ------P/B ------Div yield ------ROE ------EPS growth Mkt
‘13 ‘14 ‘13 ‘14 ‘13 ‘14 ‘13 ‘14 ‘13 ‘14 2013-14 Cap
(LC) (X) (X) (LC) (LC) (X) (X) (%) (%) (%) (%) (%) (USD m)
Handset components
FIH MOBILE * 2038 HK 4.8 NM 61.4 0.00 0.01 1.1 1.1 - - 0.0 2.1 NM 4,642
AAC TECH * 2018 HK 35.3 15.7 13.8 1.78 2.03 4.1 3.1 1.9 2.2 30.3 25.7 13.7 5,582
BYD E 285 HK 3.5 10.8 9.4 0.3 0.4 0.8 0.8 1.2 1.4 7.5 8.3 15.6 1,008
SUNNY OPTICAL * 2382 HK 8.1 15.6 14.8 0.41 0.44 1.7 1.6 1.8 2.1 16.0 13.6 5.5 1,043
MEDIATEK * 2454 TT 365.5 20.3 16.7 18.05 21.91 2.6 2.4 2.4 3.8 13.3 15.0 21.4 16,705
LARGAN * 3008 TT 996.0 15.3 12.7 64.93 78.24 5.5 4.4 2.0 3.0 35.3 37.2 20.5 4,525
MERRY ELEC 2439 TT 83.3 13.8 14.1 6.1 5.9 2.6 2.6 3.2 4.9 19.9 18.8 (2.6) 497
FOXCONN TECH 2354 TT 76.8 11.8 11.1 6.5 6.9 1.2 1.1 1.4 1.5 12.4 11.7 6.4 3,398
CATCHER * 2474 TT 163.0 9.1 9.5 17.89 17.14 1.5 1.3 4.4 5.5 20.5 17.4 (4.2) 4,145
CHENG UEI 2392 TT 59.3 11.4 13.6 5.2 4.4 1.2 1.2 4.4 4.3 10.4 8.8 (16.1) 992
Global brands
HTC CORP * 2498 TT 133.0 NM NM (1.42) (0.84) 1.8 2.0 - - (1.6) (1.1) NM 3,838
NOKIA NOK US 6.5 229.1 37.3 0.0 0.2 2.5 2.3 - 0.3 (0.4) 3.9 514.3 24,376
APPLE AAPL US 476.8 12.1 11.1 39.4 42.9 2.6 2.6 2.4 2.7 29.8 30.0 9.0 433,126
RIM BBRY US 7.9 NM NM (1.3) (0.7) 1.2 1.1 - - (11.4) (4.6) NM 4,164
Priced at 1 Oct for Asia stocks, 30 Sep for US stocks Sources: * for BNP Paribas esitmate; others from Bloomberg
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Sunny Optical Technology 2382 HK Laura Chen
Optoelectronic products: 76.1% of sales, mostly phone cameras
Optoelectronic products contributed 76% of sales in 1H13 and its 98% y-y growth continues to fuel the company’s top line. Among this segment, handset camera modules accounted for 90%+ of the shipment, while others include emerging technologies such as applications on 3D motion controllers and smart TVs.
§ Handset camera module - 8MP+ to pick up in 2H13 Thanks to demand for Chinese smartphones and product migration, Sunny saw a revenue CAGR of 85% from 1H10-1H13 for optoelectronics product The company leads this market with 30-40% market share in China by volume and continues to build up its scale and product upgrades. It supplies mainly to Chinese handset makers such as Huawei, OPPO, Lenovo, ZTE, and Gionee.
As 5MP+ smartphones become mainstream in China, Sunny increased its shipment contribution from 5MP+ modules to 49% in 1H13, from 22% in 1H12. It aims to achieve 20%+ shipment contribution from 8MP+ modules in 2013, to compensate for falling ASP from 5MP. Currently, 5MP remains the mainstream product for Sunny at over 49% of its camera module shipments, and it expects 8MP to pick up soon with a 20% contribution in 2H13. The company is also seeing increasing adoption of 13 MP, which was 2.4% of its shipments in 1H13, > 5% in 2H13 and should become mainstream in 2H14E.
EXHIBIT 11: Sunny Optical camera module shipment breakdown by pixel
(%) Below 5MP 5MP-8MP 8MP+ 100 90 80 70 60 50 40 30 20 10 0 1H11 1H12 1H13 Source: Company
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EXHIBIT 12: Top 5 selling mid-end smartphones in China (RMB1,000 -1,500)
Product Coolpad 5950 Lenovo P780 Xiaomi Mi2A Huawei G610C Lenovo A850 MIUI V5 (based on OS Android 4.1 Android 4.2 Android 4.1 Android 4.2 Android 4.1 Dual-core, Qualcomm Quad-core, Qualcomm Quad-core, Qualcomm Quad -core, MT6589, Quad-core, MT6582m, CPU Snapdragon MSM8260A Snapdragon Snapdragon MSM8625Q, 1.2GHz 1.2GHz 1.3GHz Pro, 1.7GHz MSM8625Q, 1.2GHz Display 5.5", 960x540 (200ppi) 5", 1280x720 (294ppi) 4.5", 1280x720 (326ppi) 5", 960x540 (2200ppi) 5.5", 960x540 (200ppi) Rear: 5MP Rear: 8MP Rear: 8MP Rear: 5MP Rear: 5MP Camera Front: 2MP Front: 0.3MP Front: 2MP Front: 0.3MP Front: 0.3MP 1GB RAM 1GB RAM 1GB RAM 1GB RAM 1GB RAM Memory 4GB ROM 4GB ROM 4GB ROM 4GB ROM 16GB ROM (up to 32GB Micro SD) (up to 32GB Micro SD) (up to 32GB Micro SD) (up to 32GB Micro SD) Connectivity GSM, CDMA2000 GSM, WCDMA GSM, WCDMA, NFC GSM, CDMA2000 GSM, WCDMA
Battery 2500mAh 4000mAh 2030mAh 2150mAh 2250mAh
Price (RMB) 1100 1400 1499 1150 1000
Available Jul-13 Aug -13 Apr-13 Jul-13 Sep-13
Source: Company
§ 3D motion controller In late July 2013, Leap Motion’s innovative 3D gesture controller started shipping for preorders. This portable device, put in front of a NB or PC, can sense the wave of users’ hands and finger gestures above, at over 200 fram es per second. Users can wave, point, reach or grab to control their devices through the motion controller.
It requires different sensor solutions for short- and long-distance gestures, and detecting fingers and hands movements, and combines with infrared technology for sensing. Due to technology constraints , currently there is no single player that can outperform the others in every sensor solution.
Sunny gained RMB100m revenu e for the order from Leap Motion, and is seeking cooperation with HP on a second generation of the controller. We believe its high margin will contribute to the bottom line. The application for 3D gesture control may expand further to different fields, offering another revenue stream for the company.
EXHIBIT 13: 3D motion controller
Source: Leap motion
§ Aiming for the Array Camera opportunity - we see lots of challenges ahead Aside from conventional camera modules for handset s, the company is also one of the early mover s in array camera. Array camera s use a cluster of image sensors to
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Sunny Optical Technology 2382 HK Laura Chen
create virtual cameras that outperform real ones. It combines large numbers of images computationally to produce new kinds of images. Optics, physical spacing and the arrangement of cameras is reconfigurable. As array camera can provide depth information, allows refocus (even on multiple subjects), capture linear measurements, scale and segment images, change backgrounds and apply filters; it could have multiple applications. In addition, auto-focus would not be needed; therefore it can be very thin and suitable for mobile devices.
Nevertheless, due to issues with image quality, we don’t expect it will take off in the smartphone space anytime soon in 2014 or 2015. Key issues we’ve seen are:
1 Every element, including sensor, lens, ISP and processor, needs to be precisely aligned. This is quite normal in any kind of camera module; however, for array camera, since the final image is based on an algorithm, if there is a tiny issue in any process, for instance lens uniformity, it will cause image quality problems. In addition, the array camera needs a very powerful ISP; per our channel checks, even with QCOM's MSM8974 (the latest chipset in the S800 series), it still takes more than one second to take a shot. Moreover, Pelican (Not listed) is one of the technology leaders in array cameras, and it owns patents on the whole process. This could also cause design difficulties unless vendors get a licence.
2 Can't do "macro mode" (Macro Shooting Distance). Again, as the image is formed by an algorithm, it will be difficult to take a "macro mode" shot. Due to focusing limitations, if the object is within 20cm, the image could be blurred.
3 Power consumption issue: While the camera could be 4*4 design with 16 sensors, due to power consumption issues, most of the time the 16 sensors will not open at the same time. Thus, the precision of the algorithm could be negatively impacted.
4 Low resolution video. Again, given the principle of the algorithm image, it is most unlikely to have video recording with 1080p resolution.
Given array camera's design challenges, low yield rate and high cost (estimated by our industry checks of USD20-25), high penetration (>10%) in smartphones seems unlikely in 2014. In particular, if it positions itself in the high-end smartphone market, its image quality problem should be the biggest bottleneck. Nevertheless, it could have better opportunities in other applications, such as 3D gestures for consumer devices.
Optical components - 20% of sales; internal phone camera lens supply is key
Optical components accounted for 20% of sales in 1H13. (Note: this was low compared with 33% in 2012 due to capacity reservation for a customer). Products include spherical lenses (mainly for DSC cameras), handset lens sets, vehicle lens sets, infrared and other lenses. As it is aiming to improve its high-resolution handset lens production and R&D ability, it targets 40% in-house production of handset lens and 35% of 5MP+ lenses. Sunny is also increasing automation for assembly and testing handset lens in order to increase the yield rate. Currently it has five production bases in China, including one newly built in Henan, in which it will relocate its less profitable DSC business. It has also established R&D centers and sales forces in China, Singapore, South Korea, US, etc.
§ Handset lens – longer learning curve on high-resolution lens Handset lenses accounted for 24% of optical component shipments in 1H13, with customers such as Nokia (via Sharp), Truly, A-Kerr, and Global Optics. Sunny recently obtained 8MP orders from a Korean customer (Samsung), which has entered mass production in 2H13. However, the progress seems to be slower-than- expected with monthly shipment only 1.2m units currently. In addition, Sunny also manufactures handset lenses for insourcing to camera modules, accounting for 25% of total camera modules shipped in 2Q13. Management believes this will help stabilise and improve the margins in its overall handset-related products. We also
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see an increasing 5MP+/8MP+ shipment contributions for handset lenses, from 2.3%/0.2% in 1H12 to 23.7%/3.7% in 1H13. The company is aggressively expanding its capacity for lenses in order to enhance vertical integration. Phone camera lenses usually have a long learning curve, especially the more complicated lens design requirements, such as big aperture, slim form factor, OIS function, etc. During its product transition to higher-end products, we think its margin may come under pressure in the near term.
EXHIBIT 14: Handset lens shipments and % of total camera modules
(m units) Internal handset lens shipment % of total camera module (%) 18 60 16 50 14 12 40 10 30 8 6 20 4 10 2 0 0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E
Sources: Company; BNP Paribas estimates
§ Spherical lens- Declining with muted DSC market Spherical lenses, accounting for 44% of optical components shipment in 1H13, are mainly produced for DSC cameras. Sunny provides lenses to leading DSC OEMs such as Samsung, Panasonic, Nikon, Sony and Olympus. Nevertheless, demand for spherical lenses suffers from a global DSC industry slowdown, and Sunny has seen mostly double digit y-y shipment declines in DSC business since 4Q11, the greatest being -52% in 2Q13.
§ Vehicle lens sets and infrared lenses- Strong industry position Vehicle lens sets accounted for only 4% of total sales in 1H13, but contributed much more to total earnings due to higher margins. According to the company, Sunny’s vehicle lens sets capture over 20% of the global original equipment market and generate over 40% gross profit margins. As the adoption rate for vehicle lens sets on automobiles is still low, we see significant potential for Sunny to grow in this market. For infrared lenses, Sunny ranks No.1 in the Chinese market, with a 50%+ gross margin contributing the bottom line.
Optical instruments (4% of sales)
Optical instruments accounted for 4% of sales in 1H13. They include microscopic, optical measuring and analytical instruments, with gross margins over 50%. Sunny has obtained supportive funding from the government for its LDV, a high-end optical measuring machine.
Specialty products enjoy better GM Besides handset camera modules, Sunny has diversified into specialty products with high margins. It is the key supplier of video camera modules for Samsung’s Smart TVs, which ramped up production in 2H12. It also supplied Leap Motion for its new gesture controller products in late July 2013, which comprised camera sensors and infrared LEDs. Infrared-related products and other high-end optical instruments both generate 50%+ gross margins. With more specialty product contributions, that could support overall GM.
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EXHIBIT 15: Specialty products-Smart TV and 3D controller
Samsung Smart TV Leap Motion’s gesture controller
Source: Companies Competitive landscape
Sunny is one of the leading optical component/device makers in greater China. Compared with its peers, Sunny is more diversified across different applications and products. For instance, Largan and Genius are more dedicated in phone camera lenses rather than full camera module assembly. While Sunny is relatively small in the lens module business, it has been one of the biggest camera module suppliers in Greater China. Thanks to its product upgrades and smartphone growth outlook in China, we see a long term positive trend for the company. Nevertheless, due to its product transition and the need for more R&D and investment for the upgrade as well as vertical integration, we think its margins near term may stagnate. We therefore expect milder y-y earnings growth in 2014 and expect the company to resume momentum after its product transition later in 2015.
EXHIBIT 16: Camera supply chain for smartphones
2Q13 smartphone Company Supplier market share (%) Camera module Sensor Lens Samsung 31.7 SEMCO, Samsung Fibre Optics, Samsung, Sony Kolen, Digital Optics, Sekonix, Chabio&Diostech, Bangjoo Partron Optics, Haesung Optics, Largan Apple 14.2 Sharp, LGI, Foxconn, VPTECH, Sony , Omnivision Largan, Genius Primax, Cowell LG 5.1 LGI, Hansung, Cowell, Sony Omnivision, Aptina, SK Hynix Largan, Kantatsu, Kolen
Huawei 4.2 Liteon Tech, Sunny Optical, Truly Omnivision, Aptina, SK Hynix Largan, Sunny Optical, Kantatsu
ZTE 4.3 Liteon Tech, Sunny Optical, Truly Omnivision, Aptina, SK Hynix Largan, Sunny Optical, Kantatsu
Sony 4.0 Sony, KMOT, SEMCO Sony Largan, Kantatsu, Fujinon, KMO,
Lenovo 4.7 O-Film,Liteon Tech, Sunny Optical, Omnivision, Aptina, SK Hynix, Largan, Sunny Optical, Kantatsu, Fujinon Chicony Galaxy Core Coolpad 3.4 Sunny Optical Omnivision, Aptina, SK Hynix Largan, Sunny Optical, Kantatsu, Fujinon
RIM 2.7 ST, Toshiba, LiteON, SEMCO Omnivision, Toshiba, Aptina, ST Largan
Nokia 3.1 Toshiba, Sharp, ST, Foxconn Samsung, Omnivision, Sony, Largan, Kantatsu, Foxconn, Fujinon, KMO, Anteryon, Heptagon Toshiba, ST HTC 2.6 Sharp, LiteON, Chicony Samsung, Omnivision, Sony, ST Largan, Newmax
Motorola 1.3 LGI, Foxconn, SEMCO, LiteON Samsung, Omnivision, Aptina Largan, Genius, Foxconn
Sources: Companies; BNP Paribas
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Sunny Optical Technology 2382 HK Laura Chen
EXHIBIT 17: Camera module key players comparison
Camera module suppliers Liteon Tech SEMCO* LG Innotek* Sunny Optical* Hon Hai/Foxconn* Partron
Ticker 2301 TT, NR 009150 KS, HOLD 011070 KS, HOLD 2382 HK, HOLD 2317 TT, HOLD 091700 KS, NR
FY13 Revenue (USD m) 7,108 8,364 5,982 955 123,100 1,121
FY13 GM (%) 14.8 18.0 11.5 16.0 6.7 16.0
FY13 OPM (%) 5.1 7.7 2.4 7.9 2.5 11.4 Product mix power supply, LED MLCC, Camera LED, Camera lens, mobile phone mobile phone camera module, module, module, Power, optoelectronic camera module camera module Wifi/Bluetooth Tuner, Wifi, component and components and components module, Substrate, Touch Substrates, Motor, window, etc. Power, Tuner Key customers in camera module Samsung, HTC, Samsung, Apple, LGE, Huawei, Lenovo, Sony, Nokia, Samsung MOT, Nokia, Motorola, RIM Motorola Coolpad, Oppo, Google, Huawei, Lenovo, ZTE, ZTE etc Motorola Xiaomi and Chinese Revenue contributed from camera 20+ 25-27 30-35 75-80 <10 70-80 module (%) Value share estimate(%) 10-15 23 18 5 5 7
Sources: Companies data; * BNP Paribas estimates; others (Not rated) are Bloomberg consensus estimates
EXHIBIT 18: Lens key players comparison
Lens makers Sharp Digital Optics Sekonix Largan* Genius
Ticker 6753 JP, NR 106520 KS, NR 053450 KS, NR 3008 TT, BUY 3406 TT, NR
FY13 Revenue (USD m) 29,996 153 214 831 337
FY13 GM (%) 10.51 18.7 24.6 47.4 13.9
FY13 OPM (%) 5.9 14.4 12.3 39.3 0.6 Product mix image sensor and lens mobile phone camera mobile phone camera Camera lens Lens module lens lens Key customer in lens Apple, Nokia, HTC Samsung Samsung Apple, HTC, Nokia, RIM, Apple MOT, Sony, LG, Chinese Revenue contributed from <5 80-90 50-60 95 95 camera lens (%) Value share estimate (%) 8 5 6 40 20
Sources: Companies data; * BNP Paribas estimates; others (Not rated) are Bloomberg consensus estimates
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Financial Analysis
Dupont Analysis Sunny‘s ROE has steadily improved since 2008 due to net margin expansion and high asset turnover; 2007 and 2008 were critical years. It listed on the HK Stock Exchange in 2007, which led to a drop in asset-to-equity ratio. In 2007 and 2008, the company started to focus more on optoelectronic products, which resulted in a lower net margin. However, the increasing scale balanced the asset turnover. In recent years, through product migration for handset camera modules and momentum in non-handset products, Sunny has enjoyed healthy growth in its margins. In 2012, Sunny’s ROE was 17.6%, at the higher-end compared with other camera module makers such as Lite-on, SEMCO, LG Innotek.
EXHIBIT 20: ROE comparison with other camera module EXHIBIT 19: Dupont analysis makers
(%) Net margin (LHS) (x) (%) Sunny Optical Lite-on Asset/Equity (RHS) 18 4.0 60 SEMCO LG Innotek Asset Turnover (RHS) 16 3.5 50
14 3.0 40 12 2.5 30 10 2.0 20 8 1.5 10 6 0 4 1.0 2 0.5 (10) 0 0.0 (20) 2004 2005 2006 2007 2008 2009 2010 2011 2012 1H13 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Source: Company Source: Companies
Cashflow Management has planned capex of RMB500m in 2013 and a similar level in 2014. This is mainly for capacity expansion and development of high resolution (8MP+) lenses and camera modules. The capex-to-sales ratio has declined from 27% in 2005 to 5% in 2012. We believe such capital expenditure is backed up by Samsung orders and momentum from Chinese product upgrades.
EXHIBIT 21: Operating and free cash flow EXHIBIT 22: Capex and capex to sales ratio
(RMB m) Operating cash flow Free cash flow (RMB m) CAPEX (LHS) (%) 800 600 30 CAPEX to sales ratio (RHS) 700 600 500 25 500 400 20 400
300 300 15 200 100 200 10 0 (100) 100 5 (200) 2005 2007 2009 2011 2013E 0 0 2004 2006 2008 2010 2012 2014E
Source: Company Sources: Company; BNP Paribas estimates
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Balance sheet Thanks to its scale, Sunny has enjoyed stronger bargaining power, as evidenced by its increasing AP days and decreasing AR days. Inventory days are higher than the average of industry peers as the company has expanded into vehicle lens sets, 3D lenses, and other products with more complex natures.
The company finances growth mainly by short-term liabilities, but it also maintains an impressive current ratio compared with its peers. Recently, to finance the capex investment for FY13/14, it made an exception by carrying out an equity placing of around HKD770m, representing 9.7% of the existing issued share capital. The placing price was HKD8.06 per share.
EXHIBIT 23: AR/AP/Inventory days EXHIBIT 24: Current ratio of camera module makers Sunny Optical Hon Hai (days) AR days AP days Inventory days (x) 100 6.0 Lite-On LG Innotek 90 SEMCO Sharp 80 5.0 70 4.0 60 50 3.0 40 30 2.0 20 1.0 10 0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 1H13 2005 2006 2007 2008 2009 2010 2011 2012 1H13 Source: Company Source: Companies
EXHIBIT 25: Balance sheet summary
2011 2012 2013E 2014E 2015E
(RMB m) (RMB m) (RMB m) (RMB m) (RMB m)
Cash 252 243 1,000 1,043 1,440
Inventory&Prepaid 472 748 1,022 1,162 1,312
Current Assets 1,822 2,267 3,642 4,031 4,803
Current Liability 671 1,052 1,522 1,871 2,276
Working capital 1,152 1,215 2,120 2,160 2,527
Current ratio 2.7 2.2 2.4 2.2 2.1
Acid ratio 2.0 1.4 1.7 1.5 1.5
Equity/Asset 0.7 0.6 0.7 0.6 0.6
AR days 72 65 61 59 53
AP days 57 57 61 66 67
Inventory days 64 69 66 64 58
Cash conversion cycle 79 76 65 56 44
Sources: Company; BNP Paribas estimates
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EXHIBIT 26: Sunny Optical half-yearly P&L
1H12 2H12 1H13 2H13E 1H14E 2H14E 2012 2013E 2014E
(RMB m) (RMB m) (RMB m) (RMB m) (RMB m) (RMB m) (RMB m) (RMB m) (RMB m)
Net sales 1,770 2,215 2,786 3,074 3,357 4,015 3,984 5,860 7,373
Gross profit 340 401 440 495 533 618 741 935 1,151
Operating profit 165 198 216 246 254 277 363 462 531
Pre-tax income 188 210 235 258 266 289 397 493 555
Net income 157 190 197 213 221 239 346 410 460
EPS (RMB) 0.16 0.20 0.20 0.20 0.21 0.23 0.36 0.41 0.44
Margin (%)
Gross margin 19.2 18.1 15.8 16.1 15.9 15.4 18.6 16.0 15.6
Operating margin 9.3 8.9 7.8 8.0 7.6 6.9 9.1 7.9 7.2
Net margin 8.8 8.6 7.1 6.9 6.6 6.0 8.7 7.0 6.2
Growth (y-y %)
Net sales 60.5 58.7 57.4 38.8 20.5 30.6 59.5 47.1 25.8
Gross profit 44.3 39.7 29.6 23.3 21.0 24.9 41.8 26.2 23.1
Operating profit 71.3 74.5 30.8 23.9 17.8 12.6 73.0 27.0 15.1
Pre-tax income 70.1 62.1 25.5 22.9 13.2 12.1 65.8 24.1 12.6
Net income 71.0 53.3 25.7 12.4 12.1 12.1 60.8 18.4 12.1
Growth (h-h%)
Net sales 26.8 25.2 25.8 10.4 9.2 19.6
Gross profit 18.4 18.0 9.8 12.3 7.8 15.9
Operating profit 45.4 20.0 9.0 13.7 3.6 8.7
Pre-tax income 45.0 11.8 12.3 9.4 3.4 8.3
Net income 26.5 21.2 3.7 8.4 3.4 8.3
Sources: Company; BNP Paribas estimates
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Financial statements Sunny Optical Technology
Profit and Loss (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Revenue 2,499 3,984 5,860 7,373 9,196 Cost of sales ex depreciation (1,884) (3,133) (4,796) (6,018) (7,543) Gross profit ex depreciation 615 851 1,064 1,354 1,653 Other operating income 0 0 0 0 0 Operating costs (313) (378) (473) (620) (782) Operating EBITDA 302 473 591 734 872 Depreciation (92) (110) (129) (203) (263) Goodwill amortisation 0 0 0 0 0 Operating EBIT 210 363 462 531 609 Net financing costs 56 46 37 30 30 Associates (4) 0 0 0 0 Recurring non operating income 37 (12) (5) (6) (6) Non recurring items 0 0 0 0 0 Profit before tax 299 397 493 555 633 Tax (38) (58) (85) (96) (109) Profit after tax 261 339 408 460 524 Minority interests 14 7 2 0 0 Preferred dividends 0 0 0 0 0 Other items 0 0 0 0 0 Reported net profit 275 346 410 460 524 Non recurring items & goodwill (net) 0 0 0 0 0 Recurring net profit 275 346 410 460 524
Per share (RMB) Recurring EPS * 0.28 0.36 0.41 0.44 0.50 Reported EPS 0.28 0.36 0.41 0.44 0.50 DPS 0.08 0.10 0.12 0.13 0.15 Growth Revenue (%) 37.4 59.5 47.1 25.8 24.7 Operating EBITDA (%) 29.4 56.6 24.9 24.3 18.7 Operating EBIT (%) 48.0 73.0 27.0 15.1 14.6 Recurring EPS (%) 51.1 26.5 14.7 5.5 14.0 Reported EPS (%) 51.1 26.5 14.7 5.5 14.0 Operating performance Gross margin inc depreciation (%) 20.9 18.6 16.0 15.6 15.1 Operating EBITDA margin (%) 12.1 11.9 10.1 10.0 9.5 Operating EBIT margin (%) 8.4 9.1 7.9 7.2 6.6 Net margin (%) 11.0 8.7 7.0 6.2 5.7 Effective tax rate (%) 12.7 14.7 17.2 17.2 17.2 Dividend payout on recurring profit (%) 28.7 27.7 28.6 30.4 30.4 Interest cover (x) - - - - - Inventory days 67.1 71.1 67.3 66.2 59.9 Debtor days 72.4 64.8 61.0 58.9 53.2 Creditor days 75.8 73.0 74.5 81.0 81.3 Operating ROIC (%) 13.3 22.1 22.5 20.8 22.3 ROIC (%) 14.6 20.3 20.9 19.4 20.7 ROE (%) 17.4 19.3 16.0 13.6 13.9 ROA (%) 9.6 11.2 9.7 8.5 8.5
*Pre exceptional, pre-goodwill and fully diluted
Sources: Sunny Optical; BNP Paribas estimates
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Financial statements Sunny Optical Technology
Cash Flow (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Recurring net profit 275 346 410 460 524 Depreciation 92 110 129 203 263 Associates & minorities 28 (7) (2) 0 0 Other non-cash items (85) 197 0 0 0 Recurring cash flow 310 645 537 663 787 Change in working capital (237) (244) (144) 23 75 Capex - maintenance 0 0 0 0 0 Capex - new investment (157) (200) (500) (500) (300) Free cash flow to equity (84) 202 (106) 186 561 Net acquisitions & disposals 0 0 0 0 0 Dividends paid (44) (71) (87) (103) (115) Non recurring cash flows 244 60 (9) (26) (35) Net cash flow 116 191 (202) 58 411 Equity finance 0 0 970 0 0 Debt finance (53) (15) (14) (14) (14) Movement in cash 63 177 754 44 397
Per share (RMB) Recurring cash flow per share 0.32 0.67 0.54 0.63 0.74 FCF to equity per share (0.09) 0.21 (0.11) 0.18 0.53 Balance Sheet (RMB m) Year Ending Dec 2011A 2012A 2013E 2014E 2015E Working capital assets 1,487 1,743 2,361 2,707 3,081 Working capital liabilities (608) (950) (1,416) (1,759) (2,173) Net working capital 879 793 946 948 909 Tangible fixed assets 489 646 1,017 1,313 1,351 Operating invested capital 1,368 1,439 1,963 2,262 2,259 Goodwill 0 0 0 0 0 Other intangible assets 18 23 23 23 23 Investments 14 1 0 (2) (4) Other assets 32 65 95 120 149 Invested capital 1,432 1,528 2,081 2,403 2,428 Cash & equivalents (336) (524) (1,280) (1,324) (1,721) Short term debt 63 103 103 103 103 Long term debt * 17 0 23 46 69 Net debt (256) (421) (1,155) (1,175) (1,549) Deferred tax 0 0 0 0 0 Other liabilities 7 18 18 18 18 Total equity 1,661 1,922 3,218 3,560 3,959 Minority interests 20 10 0 0 0 Invested capital 1,432 1,528 2,081 2,403 2,428
* includes convertibles and preferred stock which is being treated as debt
Per share (RMB) Book value per share 1.91 2.21 3.70 4.10 4.55 Tangible book value per share 1.89 2.18 3.67 4.07 4.53 Financial strength Net debt/equity (%) (15.2) (21.8) (35.9) (33.0) (39.1) Net debt/total assets (%) (10.8) (14.0) (24.2) (21.4) (24.5) Current ratio (x) 2.7 2.2 2.4 2.2 2.1 CF interest cover (x) - - - - - Valuation 2011A 2012A 2013E 2014E 2015E Recurring P/E (x) * 22.9 18.1 15.8 15.0 13.1 Recurring P/E @ target price (x) * 23.0 18.2 15.9 15.1 13.2 Reported P/E (x) 22.9 18.1 15.8 15.0 13.1 Dividend yield (%) 1.3 1.5 1.8 2.0 2.3 P/CF (x) 20.3 9.7 12.1 10.4 8.8 P/FCF (x) (74.7) 31.1 (60.9) 37.0 12.3 Price/book (x) 3.4 2.9 1.8 1.6 1.4 Price/tangible book (x) 3.5 3.0 1.8 1.6 1.4 EV/EBITDA (x) ** 16.5 11.6 8.3 6.2 5.0 EV/EBITDA @ target price (x) ** 16.6 11.6 8.4 6.2 5.0 EV/invested capital (x) 3.8 3.4 2.2 1.9 1.7 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Sunny Optical; BNP Paribas estimates
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Appendix
DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities (Taiwan) Ltd) ANALYST(S) CERTIFICATION Laura Chen, BNP Paribas Securities (Taiwan) Ltd, +886 2 8729 7052, [email protected].
The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein . Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations .
IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS "BNP Paribas” is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas").
The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:
Company Ticker Disclosure (as applicable)
Sunny Optical 2382 HK N/A
Largan Precision 3008 HK N/A
BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the company.
IMPORTANT DISCLOSURES REQUIRED IN KOREA The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report: Company Ticker Price (as of 02-Oct-2013 closing price) Interest N/A N/A N/A N/A
1. The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (“BNPPSK”) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations. 2. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. 3. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. 4. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. 5. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. 6. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act, BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired. 7. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks 8. The Company is recognized as having considerable interests with BNPPSK. 9. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the following securities or rights (hereinafter referred to as “Securities, etc.” in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.
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History of change in investment rating and/or target price
Largan Precision (3008 TT)
Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Date Reco TP 1,228.00 15-Sep-11 REDUCE 688 1,128.00 16-Nov-12 BUY 822 1,028.00 928.00 828.00 728.00 628.00 528.00 428.00 328.00 (TWD) Largan Precision Target Price
Laura Chen started covering this stock from 15-Sep-2011 Price and TP are in local currency Valuation and risks: Upside risks to our PE-based TP are lower-than-expected pricing pressure from competitors and stronger demand from major clients. Sources: Bloomberg; BNP Paribas
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All share prices are as at market close on 2 October 2013 unless otherwise stated.
20 BNP PARIBAS 3 OCTOBER 2013
Sunny Optical Technology 2382 HK Laura Chen
RECOMMENDATION STRUCTURE Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B) . The upside is 10% or more. HOLD (H) . The upside or downside is less than 10%. REDUCE (R) . The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. * In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Industry Recommendations Improving (é): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) (çè): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating (ê): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O) . Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N) . Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U) . Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.
RATING DISTRIBUTION (as at 3 October 2013)
Total BNP Paribas coverage universe 649 Investment Banking Relationship (%)
Buy 337 Buy 5.6
Hold 198 Hold 1.5
Reduce 114 Reduce 3.5
Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. © 2013 BNP Paribas Group
21 BNP PARIBAS 3 OCTOBER 2013