Here's how Sunny Optical can benefit from smartphone boom in China

Chinese smartphone production can spiral up to 852m units by 2014.

According to Maybank im Eng, Sunny Optical, the major optical component supplier to Chinese smartphone makers, will benefit from the smartphone boom in China. We expect its rising handset camera module shipments to trigger consensus earnings upgrades.

Here's more:

Our regional technology sector head, Warren Lau, expects smartphone production in China to expand by a multiple of over 3x, from 255m units in 2012 to 852m units in 2014. As of Jan 2013, there are about 1,121m mobile subscribers in China.

However, only 247m or 22% of these are 3G subscribers (China released 3G licenses in 2009).

We expect that Chinese telcos will become more aggressive in turning 2G subscribers into 3G with smartphones, which trigger greater demand for handset camera modules, especially as China Mobile, the leader in the PRC telco market, is raising its budget for handset subsidies.  

 Sunny Optical reported a 39% YoY increase in its handset camera module shipments in FY12. We anticipate that 5MP+ modules will make up 30% of all camera module shipments in FY12F (vs. 22% in 1H12).

This will raise its ASP by 67% YoY (ASP was up 60% YoY in 1H12) and support our FY12F earnings growth forecast of 62% YoY (consensus:+56% YoY).

In addition, we raise our estimate for handset camera module shipments in FY13F by 60%, after the company reported a 68% YoY increase in its handset camera module shipments for Jan 2013.

As a result, we raise our FY13F earnings estimates by 55% and our target price to HKD10.50  from HKD6.60, on an unchanged FY13F PER of 11x.