Should long-term investors think about buying Sunny Optical Technology Group Co Ltd (SEHK: 2382)? –
Sunny Optical Technology Group Co Ltd (SEHK: 2382) is a Hong Kong-listed company that’s mainly engaged in the development, manufacturing and sales of optical-related products.
Its products include optical parts, optoelectronics and optical instruments, the company’s clients including Chinese clients such as Huawei, Xiaomi, Oppo, Lenovo and other manufacturers.
Shares of Sunny Optical have fluctuated from HK$68-140 from the beginning of the US-China trade tensions.
Given its heavy reliance on mainland China’s smartphone industry, I’ll look at the impact of the trade tensions on Sunny Optical’s business and determine whether the stock is a buy right now.
Steady financial results
As of 31 December 2019, Sunny Optical had total revenue of RMB 37.8 billion (US$5.4 billion), with an increase of 46% year-on-year.
This increase in revenue was mainly from the company’s smartphone businesses and huge growth in the fields of vehicle imaging and sensing.
The gross profit margins of the optical components, optoelectronic and optical instruments businesses are also growing handsomely at a rate of 45.2%, 9.3% and 41.3%, which contributed to the upward trajectory of Sunny Optical’s share price since 2017.
Strong product mix but volatile shipping volume
Despite solid business fundamentals, Sunny Optical’s business is largely affected by the shipping of its products. This has been a key driver of share price momentum since the start of the Covid-19 outbreak.
Sunny Optical’s handset lens shipments reached 117 million units (up 20.8% month-on-month and up 16.5% year-on-year) in June.
I expect Sunny Optical’s handset lens shipments will continue this strong growth in China. Its lens products mix is also improving to higher-end specifications including the ultra-large image size handset lens sets.
The ultra-miniaturised head handset lens sets and 5x optical zoom handset lens sets are also gaining more popularity via mass production.
On the other hand, handset camera modules (HCM) fell 8.5% month-on-month to 45.7 million units given the restricted smartphone supply from major brands (Oppo and Vivo).
With the reopening of factory production in China, the HCM business should regain momentum in the upcoming peak season of August to November.
Positive long-term outlook
Aside from the strong product mix in the smartphone space, there are long-term positives for Sunny Optical in automobiles and more applications in Internet of Things (IoT).
The company is currently the number one leading vehicle lens supplier, in volume terms. With increasing Automatic Driver Assist System (ADAS) penetration in China, there will be solid growth prospects in this space.
Sunny Optical is the type of stock I would want to buy low from a value investment perspective. With the current geopolitical tensions, there will be an increasing risk to shipments of its optoelectronic products. Investors should be patient and wait for the best time to invest.
It is fair to say that Sunny Optical still has room for huge growth, with catalysts such as the commercialisation of virtual reality (VR) and 360-degree cameras acting as growth drivers in the long run.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Edmund R doesn’t own shares in any companied mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020