舜宇光学科技：Strategy on track with better margin outlook

Investment Rating - Rating: BUY (Maintained) [2] - Target Price: HKD 70.09 (Up from HK$49.37) [2] - Current Price: HKD 46.65 (Upside: +50.3%) [2] Core Viewpoints - 1H24 Results: Sunny Optical's 1H24 revenue and net income were RMB14,279mn and RMB1,079mn respectively, beating market consensus by 12.4% and 14.3% [2] - Key Drivers: Recovery in smartphone demand, especially flagship models, drove volume, ASP, and GM improvements [2] - Gross Margin (GM): Blended GM improved to 17.2% (vs. 14.9% in 1H23), driven by HLS and optoelectronics margin improvements [2] - High-End Products: High-end handset product shipments (6P+ lens, periscopes, large image size modules) grew 23.2% YoY, contributing 25.6% of total shipments [4] - XR Segment: XR revenue surged 110% YoY to ~RMB1bn, accounting for 5.3% of total revenue [8] - Automotive Products: Vehicle-related sales rose 16.4% YoY to RMB2,877mn, with VLS shipment guidance raised to 10-15% YoY [8] Financial Performance - Revenue Growth: 1H24 revenue grew 32.1% YoY to RMB14,279mn [2] - Net Income Growth: Net income surged 147% YoY to RMB1,079mn, reaching 60% of FY24E estimates [2] - Gross Margin: Optical components' GM rebounded 5.8ppts YoY to 31.8%, while optoelectronics' GM improved 1.3ppts to 8.2% [3] - R&D Expense: R&D expense accounted for 7.8% of total revenue, with FY24E CAPEX maintained at ~RMB3.0bn [9] Market Position and Strategy - Market Share: Sunny Optical dominates the China handset market with ~50% market share, focusing on domestic OEMs like Huawei, Vivo, Oppo, and Xiaomi [6] - Diversification Strategy: Non-smartphone revenue contribution (auto + XR) increased to >30% of total revenue in 1H24, up from 15.5% in FY20 [9] - Product Mix: Management continues to focus on improving product mix to benefit ASP and GM, with HLS shipment guidance raised to 10-15% YoY [5] Future Outlook - Smartphone Market Recovery: Global smartphone shipments are expected to gradually pick up in FY24E, driven by top-tier clients' flagship models [5] - Automotive Growth: Sunny's automotive CCM order book reached RMB10bn, supporting mid-long term revenue growth [8] - XR and AI: AI technology and foldables are expected to drive high-end smartphone growth and promote a new replacement cycle [7] Valuation and Earnings Forecast - Valuation: Sunny Optical is trading at FY24E/25E 19.5x/16.0x PE, below its 10-year average [10] - Earnings Forecast: FY24E-26E net profit estimates raised by 35.8%/34.0%/31.7%, driven by higher sales and GM forecasts [9] - Sales Growth: FY24E-26E sales and net profit growth expected to accelerate to 10.7%/20.3% CAGR [10]