Chinese Optical Component Plays Are Fully Valued After Recent Runup Amid Fickle Demand

Shares of Chinese optical component companies Sunny Optical, Q Technology, and AAC Technologies have gained more than 20% since releasing their interim results. We believe this is due to competition between optical firms having eased on the low-end and midrange lens and camera modules, and the market is expecting nationwide subsidies for consumer electronics in China. We view Q-Tech, Sunny, and AAC as fully valued, as we already expect price wars to end amid the resumption of smartphone camera upgrades, and government subsidies are likely nonrecurring. Our fair value estimates for Sunny, Q-Tech, and AAC remain at HKD 60.00, HKD 5.70, and HKD 31.00 per share, respectively.