FIRST SHANGHAI: Maintain a "buy" rating on Sunny Optical (02382) with a target price of 57.3 Hong Kong dollars.

FIRST SHANGHAI released a research report stating that it maintains a "buy" rating for Sunny Optical (02382), believing that the main theme is the increase in smartphone optical specifications, and expecting the company to see volume growth in VR/AR business and stable development in the automotive optical field. The company predicts revenue for 2024-2026 to be 383.9/437.8/478.8 billion yuan, and net profit to be 22.7/28.7/33.4 billion yuan, respectively. The target price is 57.3 Hong Kong dollars. The main points of FIRST SHANGHAI are as follows: Revenue and profit year-on-year growth, significant improvement in profitability: In the first half of 2024, the company achieved revenue of 188.6 billion yuan, an increase of 32.1% year-on-year; gross profit margin was 17.2%, an increase of about 2.3 percentage points compared to the same period last year; operating expenses were maintained at less than 12%, with a net profit attributable to shareholders of 10.8 billion yuan, an increase of 147.1% year-on-year. Recovery in demand in the smartphone industry, continuous optimization of product portfolio: Looking at the business segments, the revenue from the smartphone business was 130.3 billion yuan, a year-on-year growth of 34.5%. Among them, 630 million smartphone lenses were shipped, an increase of 23.7% year-on-year, continuing to maintain the global market share leader position, with shipments of high-end lenses of 6P and above reaching 160 million, an increase of 23.2% year-on-year. The company achieved mass production of multiple 1-inch glass-plastic hybrid main cameras and large-aperture periscopic lenses during this period and completed the development of multiple periscopic lenses. Shipments of smartphone modules reached 290 million, a year-on-year increase of 13.5%, maintaining the global market share leader position. The company continuously achieved technological breakthroughs in core components for main and periscopic cameras. With good performance in shipments in the first half of the year and favorable expectations for new launches for domestic Android customers and overseas large customers in the second half of the year, the company raised its guidance for smartphone lens and module shipments, with smartphone lens shipments expected to increase by 5-10% year-on-year, and gross profit margin expected to reach 20-25%; smartphone module shipments are expected to remain flat year-on-year, with ASP increasing by 10-15%, and the full-year gross profit margin expected to be 6-10%. Continued investment in the automotive and AR/VR sectors, gaining multiple design-in projects: The revenue from the automotive business was 28.8 billion yuan, a year-on-year increase of 16.4%, with shipments of automotive lenses reaching 53.234 million, an increase of 13.1% year-on-year. During this period, the company completed research and development of long-distance laser radar modules, ADAS automotive lenses with automatic heating functions, and obtained multiple design-in projects for laser radar products, with design-in projects for automotive modules exceeding billions, demonstrating the company's strong market potential and future growth momentum. The company raised its guidance: automotive lens shipments are expected to increase by 10-15% for the full year, with a gross profit margin maintained at 40%. The revenue from AR/VR business was 9.9 billion yuan, a year-on-year increase of 111.4%. The company continues to make extensive investments in optical display and interactive information, with revenue guidance increased from a 15% year-on-year growth at the beginning of the year to 25%.