Sunny Optical held its annual investor day on 19 June, showcasing its impressive R&D progress and leading market position. Despite uncertainties, the Company has been always focusing on investing in next generation technologies such as high optical zoom, OIS, smart driving, XR and robot. The stock has underperformed HSI by 24.5% in the past 3 months due to tariff war, soft HCM/HLS YTD volume and weakened XR hype but we think the actual tariff impact is small and the solid smart driving trend should be able to bring strong enough VLS/LiDAR/HUD/vehicle module growth, sustaining the Company’s recovery trend. Reiterate BUY with TP raised to HK$90 based on unchanged 22x 2026E EPS.
　　Key Factors for Rating
　　Smartphone: Mgmt. tones down overall 2025 global and China smartphone
　　shipment growth to 0.2% and 2.2% given the challenging macro and tariff, which has been reflected by the Company’s weak YTD monthly shipment. However, mgmt. sees camera module procurement value increases 7.1% YoY driven by miniaturisation/ultra-thin design trend and user’s high-performance video preference. We believe that ASP increase in both HLS and HCM will offset the volume weakness and keep the margin recovery trend on track in 1H25.
　　Automotive: Mgmt. spent most of the time on this subject given it has outperformed strongly YTD driven by the smart driving trend in China. Mgmt.is revising up 2025 global vehicle lens shipment demand to 400m units and is confident in its dominant position. Sunny cumulatively shipped hybrid ADAS VLS over 41KK in 2024, and achieved rapid market share gains in 1) LiDAR: obtained total contract value exceeding RMB1.5bn in 2024-25, which will be recognised in 3-5 years; 2) headlamp: expect to gain projection headlamp market share from 18% in 2024 to 30% in 2026; and 3) HUD: newly gained 3 PGU designated projects for mass production and 5kk+ designated projects for glass freeform mirror solution.
　　XR: Sunny has established full and leading solution coverage (from parts to
　　module to ODM) in XR and ranked No.1 by the shipment of XR module. The current key bottleneck of AR glass is the cost of SiC optical waveguide and Sunny believes that upon further cost down, it is set to benefit from the booming market. We believe XR will need one to two years to materialise.
　　Robot: Sunny does not hype about humanoid robot and takes a more pragmatic approach to expand in non-humanoid robots. It has achieved No.1 market share in vacuum robot, robotic lawn mower, food delivery robot and cleaning robot. We believe Sunny a key player-to-be in humanoid robot given its strong expertise in vision, optics and smart manufacturing.
　　Key Risks for Rating
　　1) Weak demand for high-end smartphone; 2) slower-than-expected market
　　share gain; 3) new price war initiated by peers; and 4) macro and tariff impact.
　　Valuation
　　We keep our 2025/26/27E EPS forecasts largely unchanged despite of the weak YTD HLS and HCM shipment given a clear mix shift towards high-end camera segment. Maintain BUY with new TP of HK$90 based on 22x 2026E EPS.