CICC's research report states that it maintains sunny optical's (02382) net income forecast for 2024/2025 at 2.47 billion yuan / 2.87 billion yuan. The bank maintains an outperform rating for the industry and a target price of 63.4 Hong Kong dollars. The company's shipments in October decreased month-on-month, focusing on the optical upgrades of Android new machines and the optimization of the company's product structure. Car-mounted and XR-related products maintain a steady growth rate.

CICC's main points are as follows:

Sunny Optical Technology announced its October shipment data:

1) Mobile optics: The company's shipments of mobile camera modules were 3.379 million pieces, a year-on-year decrease of 37.5% / a month-on-month decrease of 8.1%, mainly due to the company's focus on mid-to-high-end projects, leading to a year-on-year decrease in shipments but significant improvement in product structure. Shipments of mobile lenses were 0.116 billion pieces, a year-on-year decrease of 1.9% / a month-on-month decrease of 2.6%. During the same period, Largan's monthly revenue increased by 3.5% year-on-year / 0.4% month-on-month, while Yujing's monthly revenue decreased by 22% year-on-year / 24% month-on-month. The bank believes that this mainly reflects the differences in Android customer stocking demand.

2) Car-mounted products: The company's car-mounted lenses shipped 8.706 million pieces in October, an 11.5% year-on-year increase / a 6.5% month-on-month decrease. The trend of year-on-year growth for the whole year is determined.

3) Other optoelectronic products: Shipments in October were 0.727 million pieces, up 120.5% year-on-year / down 0.6% month-on-month.

The shipment of mobile optics decreased slightly month-on-month, focusing on the optical upgrades of Android new machines and the optimization of the company's product structure.

In terms of mobile camera modules, sunny optical's shipments from January to October decreased by 5% year-on-year, mainly due to the company's continued push for product structure upgrades. The bank believes that the increase in ASP and gross margin in 2H24 may offset the impact of the decrease in shipments, and there is still hope for steady performance growth. In terms of mobile lenses, sunny optical's shipments from January to October increased by 17% year-on-year. The bank expects the full-year shipment growth rate to exceed the company's previous guidance, while ASP and gross margin are also expected to improve with more shipments of 6P, 7P, and glass-plastic hybrid lenses. From an innovative perspective, optics are an important part of mobile micro-innovation, with Honor Magic7, Xiaomi 15, and vivo.

The Android flagship new machines released in October such as X200 are all equipped with 50 million pixel triple cameras, with Xiaomi 15Pro changing the floating telephoto lens to a periscope telephoto lens. The industry believes that the optical upgrade of flagship models is still ongoing and may further extend to mid-to-low-end models in the future. Bullish on Sunny Optical as an optical leader, continuously optimizing its own product structure amid the expansion of the high-end lens and module market capacity.

Steady growth in automotive and XR-related products.

Sunny Optical's automotive lens shipments in January to October increased by 12% year-on-year. The industry has seen improvements in the per-vehicle installation rate, average pixel size, and level of localization of automotive cameras, and is optimistic that the company as a leading supplier of automotive lenses is expected to continue to benefit. In addition, Sunny Optical's shipments of other optoelectronic products from January to October increased by 51% year-on-year. The industry expects that revenue from products such as camera modules and lenses will achieve rapid growth following the increase in shipments of AR/VR terminals.

Risks: Continued soft global terminal demand, and slower-than-expected advancement of asia vets in the automotive industry.