2026 guidance better-than-feared; high-end SP/auto/IoT to drive earnings growth

2026 guidance better-than-feared; high-endSP/auto/IoTto driveearningsgrowth Target PriceHK$82.99(Previous TPHK$91.38)Up/Downside55.3%Current PriceHK$53.45 Sunny’s 2H25revenue/net profitgrew 21%/85%YoYtoRMB23.6bn/3.0bn, withnet profit largely in-line with prior positive profit alert (RMB2.94-3.08bn) and ourestimates,but44% above consensus estimates due to one-off investment gainfrom equity interests in Goertek Optical.Looking into 2026,mgmt. guidedrevenue/net profit growth of not less than 7%/7% YoY, driven bysmartphonerevenue+5-10% YoY (ASP hikeandshare gains)andIoTrevenueof 60% YoY,offsetting weaker XR segment.We believe Sunny’s focus on high-end specupgradeand strongIoTproduct pipelinewill become major growth drivers in2026 despite near-term smartphone/auto industry headwinds. We adjustedourFY26-27E forecasts to reflect FY25 results and better-than-feared 2026guidance. Our new SOTP-based TP of HK$82.99implies20.0xFY26E P/E.Maintain BUY. China Technology Alex NG(852) 3900 0881alexng@cmbi.com.hk Hanqing LIlihanqing@cmbi.com.hk 2H25largely in-line;smartphone ASP hike and fast-growing IoT.Sunny’s2H25 net profitgrowth of85%YoYtoRMB3.0bn is in-line with priorpositive profit alert/our estimates but 44% above consensus estimates, dueto one-off gain from equity interests in Goertek Optical.2H25 GPM improved0.3pptsto 19.6%, slightly below our/consensus estimates of 20.2%/19.9%.By segment: 1)Handset:FY25revenue+9% YoY driven by HLS/HCM risingASP (+12%/+15% YoY)withbetterproduct mix.2)Vehicle:FY25revenue+21% YoY thanks to rapid penetrationof ADAS/ADS; 3) XR: revenue-7%YoY dragged bymajor client profit transition, offsettingsmart glassesgrowth(+800% YoY).4) Others: revenue+37% YoY driven by handheld imagingdevices, lawn mowing robots and warehouse automation projects. Stock Data FY26Eoutlook:handsetspec upgrade/share gain and auto/IoTgrowth.Duringearnings call,mgmt. guidedbetter-than-fearedhandsetsegmentoutlook (revenue+5-10% YoY,HLS/HCM GPM at 25-30%/8%)despiteongoingindustry headwinds.By product,Sunny expected hybridlens/periscope lens/periscope module revenue to grow 150%/40%/20%YoY. Forvehiclesegment,Sunnyremains positive on Lidar, HUD and smartvehicle lighting in FY26E. For XR biz, mgmt.guided revenue of RMB2bn(-16% YoY) due to client product transition whileoptical enginesandARsystemprojects with major overseas client will commence mass productionin FY27E. Valuation/Key risks.Despite smartphone/auto industry headwinds, webelieveSunnyis well-positioned to weather the storm, thanks tohigh-endspecupgrade andtechnology leadership across auto/IoT segments. Ournew SOTP-based TP of HK$82.99implies20.0xFY26E P/E.Maintain BUY. Source: FactSet EarningsReview Earnings Revision Valuation MaintainBUYwith new TP of HK$82.99 WemaintainBUYwith new SOTP-based TP of HK$82.99. We derived our 12-month TPfrom SOTP methodology and weighted-average target P/E multiple of20.0x FY26E EPS,to reflect Sunny’s diversification in multiple businesses with different growth profiles, andvisibility of product upcycles across different segments. Sunny adjusted its business segments to handset products, vehicle products, XR productsand other products in 2025, and we assign different target multiples to different segments.Weassign20x P/E to itshandsetbusiness to reflect itsglobalNo.1 position,AI/Foldsmartphone cycleand technologyleadership. We assign 23x P/E for its vehiclebusinessto reflect high-margin and high-growth industry nature of vehicle lens,Sunny’s No.1 globalmarket shareandacceleratedADASadoption. We apply a 25x P/E to itsXR productssegmentgiven secular upgrade trend andindustry leadership, and 15x to other products. Source: Bloomberg, CMBIGMestimates Source: Bloomberg, CMBIGMestimates Disclosures& Disclaimers Analyst CertificationThe research analyst who isprimary responsible for the content of this research report, in whole or in part, 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 analystnor his/her associates (as defined in the code of conduct issued by The Hong Kong 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 report 3 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 covered in this report.CMBIGM or its affiliate(s) have investment banking relationship with the issuers covered in this repor