China Smartphones: Signs Point to Market Recovery
More good news from China's smartphone market as demand continued to strengthen in the June quarter following a rough 2016 that was bogged down by excess inventory.
Photographer: Anthony Kwan/Bloomberg
Jefferies analyst Rex Wu has a roundup of the highlights:
On 7 July, Sunny Optical reported continuous strength in June data, accelerated from Mar to May. Xiaomi also announced it had achieved a record high shipment (+72% q-q) in 2Q17. This implies China's smartphone market has completed inventory adjustments and demand remains strong.
Homegrown smartphone maker Xiaomi sold 21.36 million handsets in the June quarter on the back of expansion in offline channels and overseas markets including India, Indonesia, Russia and the Ukraine. Wu notes the strength was underpinned by the strong uptake of Xiaomi's new handset model the Mi6.
A major beneficiary of the renewed strength in China's smartphone market has been camera maker Sunny Optical (2382.HK). New model launches in the second quarter by key customers Huawei and Oppo helped to steer camera module and handset lens sales 21.6% higher than the March-to-May period. Vehicle lens also maintained strength, with sales soaring 51.6% compared to a year ago. Wu notes shipments for all three of Sunny Optical's main businesses were tracking well ahead of company forecasts at the end of June. Shares of Sunny Optical are up 3% higher on the strong data.
Sunny Optical is expected to be a major winner as Chinese smartphone makers upgrade to bezel-less designs in the second half of the year.
Sunny will be the major beneficiary thanks to its technology upgrade for more compact camera module. We expect Sunny to deliver 33% revenue and 45% earnings CAGR in 2017-19E.
Wu has a buy rating on Sunny Optical with an HKD86 a share target price, which implies 22% upside. Sunny Optical shares are up 169% this year and trade at 27 times forward earnings.
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