FY25E profit alert in-line; auto/smart glasses to offset smartphone weakness in 2026

FY25Eprofit alert in-line;auto/smart glassestooffset smartphoneweaknessin 2026 Target PriceHK$91.38(Previous TPHK$101.47)Up/Downside45.3%Current PriceHK$62.90 Sunny announcedaFY25Epositiveprofit alertwith net profitgrowth of 70-75%YoY,driven byhigh-end spec upgrade,improvedproduct mix and investmentincome fromthe deal forGoertek Optical Tech.Excluding one-off gainsofRMB919mn,mid-point of net profit is largely in-line with our/Bloombergconsensus estimates.For 2026,we expect the smart driving trend(autoVLS/CCM), AI/AR glasses ramp-upandhigh-endcameraspec upgradetodriverevenuegrowth,offsettingsmartphoneweaknessonmemorycostpressure.WelowerFY26-27EEPSby 1-4%to reflectsmartphone industry headwinds.OurnewSOTP-based TP of HK$91.38 implies 23.4x FY26E P/E.UpcomingcatalystsincludeFY26E outlook/guidance,high-endspec upgrade,AI glasseslaunchesandADAS adoption. China Technology Alex NG(852) 3900 0881alexng@cmbi.com.hk Hanqing LIlihanqing@cmbi.com.hk FY25positiveprofitalertin-line,driven by HLS/HCMspec upgrade andsolid VLS growth.Sunny announcedapositive profit alertwith earningsgrowth of 70-75% YoY, thanks to: 1) HLS/HCM ASP/GPMimprovementduetocameraspec upgrade,2)resilient auto lens shipment growth, and3)investment incomeof RMB919mn from subsidiaries’equity transfer inexchange for Goertek Optical Tech’s equity interests.Excludingone-offgains,mid-point ofFY25earningsis in-line with our/consensus estimates.In addition,we believe GoertekOptical Tech’sdealwillaccelerateSunny’sXRbusiness development given the former’s technology leadership inoptical waveguideforAI glassesandAR headsets. Stock Data FY26E outlook:smart driving (VLS/VCM) and AI/AR glassesto offsetsmartphoneweakness.1)Smartphone HLS/HCM:we expectHLS/HCMrevenue to decline 12%/12% YoYdue to mid/low-endAndroid smartphoneweaknessand inferior product mix(CMBI forecast:5%YoY globalsmartphoneshipment declinein FY26E).2) AutoVLS/CCM:we expectrising penetrationof L3/L4+ADAS will benefit shipment/ASP and weforecast VLS/CCM revenuegrowth of24%/30% YoY.3) XR:we expectAI/AR glasses to ramp up rapidly in 2026-27E and Sunny is the keybeneficiary givenitssolidcustomerbase(Meta/Google/Samsung/Apple). Maintain BUY with loweredTPon smartphoneheadwinds.We lowerourFY26-27EEPSby 1-4%to reflectweaker HLS/HCM shipment/ASPamid smartphone industry headwinds onmemory costhike. Our new SOTP-based TP of HK$91.38implies23.4xrolled-overFY26E P/E.Reiterate BUY. Source: FactSet Earnings Revision Valuation MaintainBUYwith new TP of HK$91.38 WemaintainBUYwith new SOTP-based TP of HK$91.38. We derived our 12-month TPfrom SOTP methodology and weighted-average target P/E multiple of23.4x FY26E EPS,to reflect Sunny’s diversification in multiple businesses with different growth profiles, andvisibility of product upcycles across different segments. Welower target P/E multiples across all segments given smartphone/auto industryheadwindsin the near term, andassign23x P/E(vs prior 28x)to its CCM business to reflectitsglobalNo.1 position,AIproduct upcycle and technologyleadership. We assign 25x P/E(vs prior 38x)for its vehicle lens business to reflect high-margin and high-growthindustrynature of vehicle lens,Sunny’s No.1 global market shareandacceleratedADASadoption.We apply a 23x P/E(vs prior 28x)to its handset lens segment given secular upgrade trendand continued share gains from peers. Source: Bloomberg, CMBIGMestimates Source: Bloomberg, CMBIGMestimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or inpart, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The HongKong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report.CMBIGM or its affiliate(s) have investment banking relationship with the issuers covered in this report in preceding 12 months. CMBIGM RatingsBUY HOLDSELLNOT RATED : Stock with potential return of over 15% over next 12 months: Stock with potential return of +15% to-10%over next 12 months: Stock with potential loss of over 10% over next 12 months: Stock is not rated byCMBIGM :Industry expected to out