FY24 net profit slight beat driven by end demand recovery and GM improvement
Sunny’s FY24 result was ahead of market consensus, with revenue and net income came in at RMB38,294mn/2,699mn respectively (+20.9%/+145%Yoy), net income arrived at the high-end of the profit alert (+140-150% Yoy) in early Feb and 4.4% above Bloomberg consensus. Sunny’s FY24 revenue and net profit were above our forecasts by 5%/11% respectively.
We attributed Sunny’s result beat to the following factors: i) smartphone end demand gradual recovery (esp. flagship models), which drove up ASP and GM. Blended GM beat our estimate by 0.7 ppt and came in 18.3% (vs. 1H24 at 17.2% and 2H24 GM at 19.3%, similar to 2H22 level, thanks to HLS and optoelectronics margin improvement on spec upgrade; ii) lower effective tax rate offset higher interest cost.
Quality growth strategy stays intact with decent FY25E HLS+HCM shipment guidance, GM upside potential in HLS and HCM;
Sunny continue to uphold its global leading position in HLS and HCM with 30.8%/12.1% market share in 2024. Handset related sales grew 20.2% Yoy to RMB25.1bn on the back of gradual pick up on smartphone end demand, while spec upgrade and lesser competition help improve both ASP and GM. Optical components (mainly HLS) and optoelectronics (mostly HCM) shipment volume arrived at 1,324mn/533mn units (+13.1%/- 5.9% Yoy) respectively.
Sunny’s optical components and optoelectronics’ GM each rebounded 3.5ppts Yoy to 31.9%/9.0%. Optical components’ GM stayed above 30% level for the 3nd consecutive HoH, which we believe Sunny benefit from the recovery in premium smartphone market, which drove up both ASP and GM, meanwhile improved yield rate also benefits HCM’s GM. We view Management’s FY25E GM guidance a decent one, with HLS/VLS/HCM GM at ~32%/~40%/8.5% respectively.
For shipment guidance, Sunny guided HLS/HCM to grow 5%/5-10% Yoy, with ASP upside on HLS, while HCM ASP would be stable Yoy. HLS shipment guidance came slightly below our estimates (+ve high single Yoy) while HCM shipment guidance was a slight surprise to us (+ve low single Yoy). Management continues focusing on improving product mix which would benefit both ASP and GM in the medium term. We still expect global smartphone shipment continue its gradually recovery in FY25E, mainly driven by top-tier clients’ flagship model with AI features.
We still see the shipment pace would be similar to that in FY19-FY24, Sunny’s YTD (2M25) HLS and HCM shipment reached ~15%/~13% of our FY25E shipment forecasts (HLS: +5% Yoy/ HCM + ~8% Yoy). Management remains positive on long term prospects (incl. variable aperture, hybrid lens, OIS and sensor-shift stabilization), meanwhile AI technology and foldables would lead the growth of high-end smartphones and promote a new round of replacement cycle in the medium term.
Sunny’s high-end handset product shipment (i.e. 6P+ lens, periscopes and large image size modules) posted a steady growth in FY24, and volume contribution was still stable at~25%, its higher ASP plays an important role in driving sales growth, we view this not as a sign of stabilization in high end product shipment, but also on the right track for Management’s ‘quality-growth’ strategy:
Sunny’s high-end product contribution made good progress in recent years with increasing contribution from 6P+ lens (23.0%/24.7%/25.6%/32% in FY19-Y23). In FY24, shipment grew 11.5% Yoy (vs. 1H23/1H24: - 32.9%/+23.2% yoy) to 337mn units (25.4% contribution, vs. 25.7%/25.8%/25.6%/25.6% in 1H23/FY23/1H24).
Periscopes and large image size (> 1/1.5”) camera modules rose 27.5% Yoy to ~24mn units (vs.10.9%/66.5% in 1H23/1H24) and took up ~4.5% of HCM shipment volume (vs. 6%/10.3%/6.7%/13.7%/7.6%/7.6% in FY19-1H24).
XR related revenue grew 38% Yoy to ~RMB2.6bn and took up 6.7 of total revenue (vs. 1.6%/3.6%6.2%/5.9% in FY20- FY23). Sunny currently serves >30 AI glass customers and maintains global leading market share in optical display and imaging modules. Sunny expects revenue growth to be flattish as VR growth to be offset by decent AI/AR growth, while XR supply chain is immature.
Automotive products: Slight upbeat on FY25E VLS shipment guidance, Strong CCM order book paves way for future growth;
Vehicle related products (incl. both VLS+ vehicle camera modules) sales rose 14.3% Yoy to RMB6,039mn and accounted for ~16.0% of total revenue (vs. 7.9%/12.4%16.7% in FY21-FY23), on the back of VLS shipment grew ~13% Yoy to 102mn units. Sunny guided FY25E VLS shipment to grow 15-20% (vs. +10-15% VLS shipment guidance in FY24) Yoy, driven by pixel migration and higher ADAS density per car. Sunny’s 2M25 shipment was on track to FY25E shipment guidance and arrived at ~21.6mn units (~18% of FY25E guidance vs. ~18.5% on average in FY19- FY24)
Sunny’s automotive business outlook remains upbeat, driven by project wins, and increasing no. of cam adoption accompanied by more compact design (e.g. COB packaging technology on automotive CCM) with added value (e.g. active defogging), pixel migration etc. Sunny’s automotive CCM revenue grew 35.2% Yoy to ~RMB 2.1bn in FY24 (FY22-FY24 CAGR at 50%), and expects to reach RMB3bn in FY25E (+40% Yoy) thanks to project wins across customers in Europe and Asia. Sunny also shared that the order book on hand was ~RMB15bn, we believe the order book bodes well for Sunny’s automotive CCM revenue growth in mid-long term. We believe Sunny continue to benefit from increasing automotive CCM, LiDAR and ADAS penetration, thanks to their leadership in VLS (No.1 with >30% global market share) and leading supplier in automotive CCM.
FY25E CAPEX mainly on HCM, automotive and infrastructure
Sunny continues to invest in product R&D and technology upgrades. R&D expense arrived at ~RMB2.9bn and accounted for 7.6% of total revenue (vs. 5.9%/6.6%/7.0%/8.4%/8.1% in FY19-FY23). We expect Sunny R&D expense would maintain at ~8% in FY25E/FY26E.
Sunny’s FY24 CAPEX came in at RMB2,260mn (-9.1% Yoy), lower than its FY24E CAPEX at ~RMB3.0bn (+20% Yoy, similar to FY22 level). Sunny’ FY25E CAPEX would be ~RMB 2.6bn in which ~40% would be used in XR (RMB 600mn R&D) and auto segment (RMB 400mn in total for lens and modules capacity expansion, each reaching 11kk/1.4kk/month (i.e. +1.6x /40% increment from current designed capacity), while RMB 800mn will be allocated to expanding infrastructure in Vietnam (including new factories) and China.
Raise FY25E-26E EPS forecasts and introduce FY27E forecast; Quality growth + diversification strategy well on track; Maintain BUY
We raise Sunny’s FY25E-26E net profit estimates by 16.1%/14.1%, on the back of higher sales and GM forecast, we also introduce FY27E estimates. We continue to expect a mild recovery in FY25E driven by top-tier smartphone clients. We still view Sunny’s leadership in HLS and HCM remains intact, and their strategy to diversify away from smartphones is well on track, with non-smartphone revenue contribution (with auto+XR accounted for >60% of the non-smartphone sales) increased to >35% of total revenue in 2H24. After having risen by ~40% YTD, Sunny’s share price has corrected ~24% since early March, as investors tends to lock in profits while Sunny’s FY25E guidance on both HCM’s ASP and GM disappointed the market further accelerated last 5 trading days’ sell off (-14%).
Sunny is now trading at FY25E 23.0x PE (~15% below Sunny’s 10-year average), we expect FY24-27E sales and net profit would grow 10.2%/18.7% CAGR on the back of i) gradual global smartphone market recovery, ii) continued share gain in top-tier smartphone clients and iii) increasing non-smartphone contribution. Sunny’s clear mid- term product roadmap would continue to play a part in Sunny’s new growth engine, we maintain Sunny’s rating at BUY with new TP at HK$92.60, which translates to FY25E 29.0x target PE. Sunny remains one of our sector top pick, we continue to advise investors to buy on dip and ride on smartphone market recovery.