We hosted Sunny Optical at 4Q outlook investor call this week. Mgmt. reiterated that 2024 guidance for HCM/HLS/VLS/auto module/XR businesses remains unchanged and has been well on track YTD. Mgmt. is also confident that new CEO and mgmt. team will continue to lead Sunny for sustainable long-term growth. In addition, mgmt. expected limited impact from the US new tariff plan given its business focus and established compliance system. Maintain BUY with TP of HK$72.52, implying 24.9x FY25E P/E.
　　Smartphone: HLS/HCM guidance on track; Better mix/ASP hike/margin recovery in 2H24E. Mgmt. reiterated FY24E guidance for HLS/HCM: 1) HLS: FY24E shipment to climb 5-10% YoY, ASP to improve HoH and GPM to reach 22-25% in 2H24E (vs. 20% in 1H24). 2) HCM: revenue YoY growth in FY24E with flattish shipment and ASP increase on better product mix. Overall, mgmt. expected smartphone demand recovery and high-end spec upgrade will drive Sunny’s revenue growth and market share gains given technology leadership and global No.1 position in smartphone market.
　　Automotive/XR: solid business outlook. For VLS, mgmt. reiterated HLS 2024 full-year guidance: 1) 10-15% YoY shipment growth, 2) stable ASP, 3) ~40% GPM. Mgmt. expected auto lens business will continue to grow in next few years given increasing number of cameras installed on EV and rising ADAS penetration. In addition, Sunny’s focus on high-end product mix, technology advantage and scale capability will offset market pressure. As for auto module biz, mgmt. maintained guidance of 25% YoY revenue growth. For XR, mgmt. expected new product launches in 2H24E will boost order momentum and achieve 25% YoY sales growth in 2024.
　　Remain confident in mgmt. transition; no impact from the US new tariff plan. Mgmt. reiterated that recent CEO appointment is solely based on Mr. Sun’s decision and this is not related to any performance issues. In addition, mgmt. stated that the new CEO will continue to lead Sunny for future growth given his experience in strategic planning and R&D after seamless transition. Regarding the US new tariff plan, mgmt. expected limited impact given its focus on smartphone components and Sunny’s established compliance system, and Sunny will continue to monitor the dynamics along supply chain.