蘇州過後？

Sunny Optical (2382.HK)

Last chance to buy before strong results; reiterate top BUY with new TP of HK$70.00

Sunny’s February shipments remained at a high level despite the CNY holiday and market concern over the smartphone inventory issue. Our check suggested still-healthy upstream demand into 2Q17. There is only a 2-day window to buy at this price level ahead of the strong 2016 results announcement and the company’s guidance that will lift the street’s excessively low 2017E earnings forecast. Reiterate top BUY with target price lifted to HK$70.00 as we roll over SOTP valuation to the 2017E and 2018E average.
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Consensus is too low. The reasons are the market’s underestimation of the operation leverage of HLS and miss of the 1+1=4 gross profit relationship from single camera to dual camera.

The 1+1=4 formula for dual camera is another reason. As the dual camera has higher manufacturing requirements and sets a high entry barrier for smaller module makers, dual camera ASP is more than 3x that of single camera and has higher gross margin. Our analysis shows unit gross profit for each dual camera can reach around RMB20, vs. c.RMB5 for single camera, which is a 4x relationship.
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Last Chance to Buy before Strong Results Some investors have concerns on Sunny Optical’s valuation as the overly low consensus earnings may significantly inflate valuation. After the earnings announcement on 13 March and the company’s guidance to be released at the analyst briefing, we expect the street to revise up earnings significantly. The 2-day window is the last chance to buy at this price due to the market concern on the so-called “smartphone inventory issue” and excessively low consensus.


My take: Sunny at Thursday's close of HK$51.60 trades at 62X trialing P/E, on surface quite expensive, but if BOCI's assertion about consensus being too low right, stock actually not too pricey. BOCI forecasts 2016 earnings to jump 78.7% on-year to CNY1.26 billion, then grow further 56.5%/50.4% in 2017/18 to CNY1.97 billion/CNY2.97 billion, implying forward P/Es at 25X/17X.

Suuny set to report Monday (March 13).