Sunny’s FY24 revenue/NP growth of 21%/146% YoY was largely in-line with its prior profit alert, driven by solid growth across all segments and improving GPM on a better product mix. Although the stock corrected by 10% yesterday due to softer- than-expected HCM/HLS/VLS shipment guidance (+5-10%/+5%/+15-20% YoY) in our view, we believe Sunny’s strategic focus on HCM/HLS profitability over market share and accelerated expansion into automotive/XR/robotics segments will continue to drive earnings growth into 2025/26. In the longer term, we believe Sunny is well-positioned to capture multiple growth opportunities in AI phone upgrade, ADAS penetration, AI glass product cycle and embodied intelligent robotics. We slightly adjust FY25-26 EPS to reflect FY24 results, softer shipment guidance and better margins. Our new SOTP-based TP of HK$101.47 implies 30.3x FY25E P/E. Upcoming catalysts include spec upgrade, AI glasses launches and ADAS adoption.
FY24 in-line; better-than-expected GPM on improving HLS/HCM mix.
　　Sunny FY24 revenue growth of 21% YoY was largely in-line with market expectation backed by: 1) Smartphone (HLS/HCM): +20% YoY on shipment recovery and better mix; 2) Auto (VLS/auto module): +14% YoY on rising ADAS penetration; 3) XR (vision modules): +38% YoY on rising demand for optical module integration. FY24 GPM improved 3.8 ppt YoY to 18.3% given a better mix across HCM/HLS/VLS, which fuelled FY24 earnings growth of 146% YoY.
　　2025 guidance: softer HCM/HLS shipments, better product mix and rapid auto VLS/module growth. For 2025, mgmt. guided: 1) Handset lens (HLS): 5% YoY in shipments with better ASP and GPM of 25-30%; 2) Handset camera module (HCM): 5-10% YoY in shipments with flattish ASP and GPM of 8-10% (vs. 9.7% in FY24); 3) Auto (VLS/module): 15-20% YoY in VLS shipment and 40% YoY in auto module revenue; VLS GPM will remain stable at ~40%; 4) XR (VR headset/AI glasses): flattish sales with stronger AI glasses offset by VR headset weakness. In particular, mgmt. shared more details on its XR industry leadership: 1) over 30 AI glasses clients, 2) expansion into AR glass ODM segment, and 3) global No.1 in MR optical display module market and optical imaging module market.
　　Market concern is overdone; Multiple growth drivers in 2025. We believe stock price reaction to softer HCM/HLS shipment guidance is overdone, as spec upgrades (periscope/OIS/hybrid) in high-end smartphone segment will continue to improve Sunny’s HCM/HLS product mix in 2025, in-line with recent comments from its peers, AAC and Q-tech. In addition, Sunny’s technology leadership in AI glasses, auto and robotics should pave the way for long-term growth. Based on revised earnings forecasts, we adjust our SOTP-based TP to HK$101.47, implying 30.3x FY25E P/E.