Sunny Optical Earnings: Recovery in Smartphone Camera Lenses Is Overlooked; Shares Undervalued

Following the company's sluggish first-half results, we have lowered our fair value estimate for Sunny Optical to HKD 107 from HKD 125 due to the slower recovery in smartphone shipments and worse-than-expected product mix. However, even after lowering our 2023 sales and EPS forecasts by 4.6% and 34.0%, respectively, we remain optimistic in the medium term that Sunny will benefit from the rebound of midrange smartphone sales and camera upgrades starting in 2024. We believe that Sunny’s shares are undervalued, as the market is still skeptical about the smartphone lens turnaround.