Sunny Optical: Disappointing Profit Warning Issued, but Near-Term Outlook Improving

Sunny Optical 02382 announced a profit warning indicating that its first-half net profit will be 65% to 70% lower than the previous year, which we believe is due to the significant discounting of its average selling prices to clear inventory. While we are disappointed with the magnitude of the decline as vehicle-related shipments have increased and high-end smartphone shipments have been resilient, we see some positive signs as we look into the second half. There are growing indications, notably from MediaTek, Largan Precision, Win Semiconductors, and Q Tech, that the inventory correction in Android and upper-midrange smartphones is largely complete, and that orders from smartphone brands are starting to pick up. However, we reckon it would unlikely be enough to compensate for the first-half decline to achieve our 2023 earnings forecasts. We hold our fair value estimate for Sunny at HKD 125 for now and will update our estimates once it holds its semiannual earnings briefing in late August.

After adjusting for noncash foreign-exchange losses, the midpoint decline drops to 55.6%, compared with Q Tech’s profit warning of a 60% to 80% decline and Largan’s 37.1% decline over the same period. Shipments of handset lens sets and handset camera modules declined by 21.4% and 11.8%, respectively, but were buoyed by a 25.2% increase in vehicle lens set shipments in the first six months of 2023.