Sunny Optical Q3 momentum may potentially slow

Uncertainties could dampen the sunny outlook.

Despite the positive outlook provided by Sunny Optical recently, it is believed that the near-term demand uncertainties from Samsung and the production adjustment from Chinese brand names could potentially affect Sunny Optical’s sales and earnings momentum in early 3Q14.

According to a research note from Maybank Kim Eng, this comes amid the company's significant exposure to Chinese brands and very high expectation on lens contribution from Samsung.

As a result, Maybank Kim Eng suggested investors to wait for more clear signs at this moment. It noted that its forecasts, target multiple and TP of HKD10.50 are unchanged, and said that the key risks are end demand and competition.

The report noted, however, the positive outlook provided by Sunny Optical recently. Maybank Kim Eng detailed Sunny Optical's expectation to increase camera module sales by 30-35% YoY and its continued expectation regarding lens shipment to grow by more than 100% YoY in FY14F due to rising demand in China, market-share gain and more new orders kicking in for Samsung
smartphone lens.

Here's more from Maybank Kim Eng:

Downgrade to HOLD as positives priced in. Stock +45% since our BUY call in Apr-14. Forecasts and target price unchanged.

3Q momentum may slow due to China smartphone demand uncertainties and lukewarm Samsung outlook, putting its upbeat guidance at risk. Suggest wait for better entry point.

Sunny can benefit from camera migration trend but looks fairly valued after strong run-up and it’s trading at 15x FY14F PE vs historic average of only 11-12x.