Check out how Sunny Optical will benefit from Samsung deal

Analyst predicts 23% jump in earnings.

According to Nomura, Sunny Optical stated that it had qualified as Samsung’s handset lens supplier, and will supply 5MP and 8MP lens sets to Samsung commencing in 2Q13. Sunny management also stated that it has started a joint development project  with Samsung on 13MP lens set as well. 

Here's more:

We believe client expansion is one of the most important and difficult things for handset  component vendors because of the large difference in quality requirement and workflow between OEMs. 

From the successful growth history of AAC, we have seen that customer expansion is one major driver of its share price expansion (9x in 8 years since the IPO). Sunny basically only has one group of customers with a similar profile (Chinese OEMs), if Sunny can successfully establish itself as one of the key suppliers to Samsung, we think it will help Sunny to step up (in terms of both earnings and market cap).  

If Sunny’s lens set business can achieve 30% OPM in line with Largan and capture 15% of Samsung’s share by 2014, the Samsung deal would create a 23% upside to Sunny’s FY14 earnings, based on our estimates. 

• Base case (low margin and low shipment volume case): 4% upside. If Sunny can only generate 10% OPM and capture only 7% share from its Samsung
business by 2014F, it would create 4% upside to Sunny’s existing earnings. 

• Case 3 (weak demand): -13% downside If the order from Samsung did not come in as expected, Sunny may suffer from low factory utilization rate and depreciation overhead.

This may happen if Sunny faces any product quality issue or Samsung’s smartphone sales are below its own expectations.

While we will closely monitor market demand for Samsung smartphones, according to the estimate by CW Chung, Nomura’s Korea Technology analyst, Samsung will ship 316mn smartphones in 2013 (47% y-y growth) driven by 28% total smartphone market expansion (based on Nomura’s estimates) and 2pp gain in market share to ~34%.