Sunny Optical beats forecasts with 61% climb in net profit

Thanks to smartphone boom.

According to Maybank Kim Eng, net profit increased 61% YoY to CNY346m, above consensus forecasts of CNY336m but inline with our estimate of CNY349m. 

Maybank adds, management explained that the strong earnings growth was mainly attributable to the fact that Sunny Optical had capitalised on the opportunities of the smartphone boom by rapidly upgrading its handset camera module products. 

Here's more:

As a result, both sales volume and average selling prices of its handset camera modules rose substantially.

With the company expected to continue upgrading its product lines and production capacity while demand for low-cost smartphones in China will likely stay strong, we remain bullish on Sunny Optical's earnings growth prospects, especially because of its strong client base that includes the big four Chinese brand smartphone makers, namely Huawei, ZTE, Lenovo and China Wireless.

Capex rose by 52% YoY to CNY308m on production automation and capacity upgrades.

Since we anticipate that the company will continue expanding its new production plant in Xinyang, which is expected to satisfy the growing demand for handset camera modules from its clients, we expect capex to continue rising.

We will seek more updates from management during the analyst briefing today.  

Sunny Optical’s share price has been rising strongly since Jul 2012 on the prospect of product upgrades and earnings acceleration.

With 3G penetration in China still only 22% as of Jan 2013, the Chinese telcos are becoming more aggressive in turning 2G subscribers into 3G ones with smartphones.

Meanwhile, Chinese-brand smartphone makers are upgrading the performance of their smartphones with higher camera resolution.

As such, we estimate earnings of Sunny Optical to grow strongly supported by increase in demand of low-cost smartphones with performance upgrade, which will in turn boost its ROEs, strengthen its balance sheet, and likely lead to growing dividends.