Sunny Optical's camera sales slowed in September

Sales for handset camera modules rose 22.8% YoY against August' 33.7%.

On Saturday, Sunny released September shipments which showed that: 1) handset camera modules (HCM) rose 22.8% y-o-y (9M12: +33.7% y-o-y), driven mainly by continuing strong demand for 5MP and 8MP Chinese made smart phones.

However, September’s growth rate lags August’s +45.8% y-o-y, which management explained is due to September 2011 being the best month last year and 2) handset lens sets (HLS) again fell 34.0% y-o-y (August: -37.9% y-o-y), as production constraints on 5MP and above lenses have not been fully resolved. On a m-o-m basis, HLS September shipments, however, rose 7.3%, with 5MP and above soaring 100%.

Other optoelectronic products shipments rose 26.1% y-o-y and digital camera lens shipments continued to fall 0.7% m-o-m and 34.1% y-o-y on further switch to high-end and higher ASP DSLR lenses.

OSK believes that there will be stronger ramp up of HCMs in the 4Q12 peak season to lead to a further re-rating.

Here's more from OSK-DMG:

 September HCM shipment growth slows on high base. HCM shipments increased: i) (y-o-y) by 22.8%, driven mainly by the strong demand for 5MP and 8MP Chinese made smart phones. However, September’s growth is below the 45.8% surge in August, because September 2011 was the best month last year (7.03m units shipped) and ii) (m-o-m) 4.9% similar to August’s +4.4%. For 9M12, HCM shipments were up 33.7% y-o-y, accounting for 72.0% of our full year FY12 forecast (FY11: 72.8%)

HLS still affected by production constraints. HLS shipments again fell 34.0% y-o-y (August: -37.9%) mainly because: i) certain handsets makers such as NOKIA temporarily ceased production of several low-resolution models as they shift production to higher-resolution (5MP or above) smart phones and ii) Sunny is not able to fully keep up with such a rapid shift in demand for higher resolution HLS; despite continuous efforts to add capacity and improve the yield rate for such products. However, September HLS shipments still grew 7.3% m-o-m (August: +27.4% m-o-m) showing that capacity is still expanding. 9M12 HLS shipments are up only 3.7% y-o-y, representing 58.4% of our full year FY12 forecast and lagging the 66.1% in 9M11. However, the lower shipments are being offset by a higher sales mix of more expensive 5MP and above HLS, which jumped by 100% m-o-m in September.

Smart TV video modules shipments normalize. In September, shipment growth of other optoelectronic products were up 26.1% y-o-y as mass production of smart TV video modules continues. However, shipments fell 79.1% m-o-m mainly because August shipments (+503% y-o-y and +70.1% m-o-m) were unsustainably high. Management expects shipment growth to be maintained at a steady level in coming months. 9M12 shipments (+142.6 y-o-y) are running ahead of our full year estimates as they comprise 79.5% of our FY12 forecast (FY11: 68.7%).

Camera lenses shipments continuing to shift towards the high end. September shipments edge down 0.7% m-o-m (August: -20%) but fell by 34.1% y-o-y (August: -30.7%). 9M12 shipments are down 20.1% y-o-y, making up 69.6% of our full year forecast (FY11: 79.4%). However, as in the HLS case, we expect higher ASPs here to offset lower shipments.

Reiterate BUY on unchanged TP of HKD5.76 Sunny’ shares currently trade at 6.9x FY13 PER, which we believe is attractive as it is below: i) the counter’s post-IPO forward PER average of 9x, ii) its peers’ average of 11.8x FY13F PER and iii) our target FY13 PER of 9x.