Jefferies: Apple's Introduction of COB Technology Benefits Both Sunny Optical and Cowell e Holdings

Overview

Based on channel surveys, this report analyzes the trend of shifting from Flip Chip (FC) to Chip-on-Board (COB) technology in camera module assembly within Apple's supply chain and its impact on related suppliers. Jefferies notes that to pursue miniaturization, Apple plans to adopt COB technology first on wearable devices like TWS earphones and AI glasses, potentially extending to periscope and ultra-wide cameras in iPhones by 2028. The report argues that this trend is not zero-sum; Sunny Optical will gain new opportunities to enter Apple's supply chain, while Cowell e Holdings, leveraging its dual leadership in COB and FC technologies, is poised to further consolidate market share. Thus, both companies are considered beneficiaries of this trend.

Core views

Event Background and Market Reaction: On Friday, May 29th, Sunny Optical's shares rose 14%, driven primarily by market rumors suggesting it could supply camera modules to Apple via COB assembly solutions and achieve breakthroughs in AI optics. Jefferies' prior channel surveys confirmed that Apple indeed plans to adopt COB technology to gradually replace existing FC assembly schemes to achieve more extreme miniaturization. Impact on Sunny Optical: Sunny Optical has long accumulated deep expertise in camera module miniaturization (leading in MOB/MOC solutions). Apple's adoption of COB technology provides Sunny Optical with more opportunities to enter its camera module supply chain in the future, with the potential Total Addressable Market (TAM) for this business possibly rivaling the entire Android阵营 (阵营 implies a faction/group, translated here conceptually as 'competitors or specific market segments'). Furthermore, Sunny Optical's product structure in the Android market continues to optimize, with mixed/periscope lenses expected to account for approximately 10%/20% of smartphone lens revenue in 2025, and periscope modules accounting for about 20% of module revenue. Management guidance indicates these high-end products will achieve robust revenue growth in 2026, helping to mitigate headwinds in the current smartphone market. In the AI optics sector, although R&D and customer certification take time, Sunny Optical can leverage its existing capabilities in prisms, MLA, FAU, and packaging services. Its ample cash reserves (approx. 21 billion RMB net cash in 2025) also support future integration of key customer supply chains through M&A or equity investments. Impact on Cowell e Holdings: While some investors worry about the threat posed by Sunny Optical's entry, Jefferies believes Cowell e Holdings holds leading positions in both COB and FC technologies and is likely to strengthen its status within Apple's supply chain, winning more projects from competitors. From this perspective, Sunny Optical is more likely to capture market share from existing suppliers other than Cowell e rather than directly threatening it. Therefore, Jefferies maintains its judgment that Cowell e Holdings will deliver strong compound net profit growth over the next few years driven by market share gains and ASP increases. Additionally, Cowell e Holdings has potential in AI optics (such as collaborating with Luxshare to offer Micro LED as a CPO solution), presenting possibilities for future revaluation.

Analysis framework

Jefferies adopted a combined approach of bottom-up industrial chain analysis and top-down technology trend assessment. First, channel surveys were used to confirm Apple's technology roadmap (shifting from FC to COB) and timeline (wearables first, then mobile) for camera module miniaturization. Second, the technical reserves, market positions, and financial health of two core suppliers were evaluated separately to analyze the specific impacts of the new technology route on the competitive landscape. Finally, DCF valuation models were applied to derive target prices and investment ratings. This analytical approach emphasizes 'incremental logic' over simple 'substitution logic' during technological iteration, helping investors understand why two seemingly competing companies can both benefit.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-to-Downstream Transmission in Industrial Chains

  Impact of upstream technological change (COB packaging) on the competitive landscape of midstream module manufacturers

  The report analyzes how changes in downstream brand preferences (Apple) transmit to midstream module suppliers, leading to a redistribution of supply chain qualification and market share rather than a simple zero-sum game.

• Valuation MethodologyDCF Cash Flow Discounting

  Using DCF models to calculate target prices

  The report explicitly uses the DCF (Discounted Cash Flow) model to value Sunny Optical and Cowell e Holdings, setting specific assumptions for WACC and terminal growth rates. This is a common method for valuing growth-oriented technology manufacturing enterprises.

• Competition and Strategy FrameworkMoat / competitive advantage

  Technological leadership as a competitive barrier

  The report emphasizes Cowell e Holdings' dual leadership in COB/FC technologies as its moat, enabling it to maintain advantages during the early stages of new technology introduction and secure more projects, highlighting the core role of technical barriers in supply chain competition.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sunny Optical Technology (2382.HK)

  Beneficiary: Expected to enter Apple's camera module supply chain through COB technology, expanding TAM.

  Strengths

  Leading in MOB/MOC miniaturization solutions; optimized product structure in Android market; ample cash reserves supporting expansion.

  Weaknesses

  Entering Apple's supply chain still requires time for R&D and customer certification.

  Comparison

  Compared to other existing suppliers, Sunny Optical is more likely to capture share from vendors other than Cowell e Holdings.

  Risks

  Slower-than-expected recovery in smartphone demand; deterioration in ASP/gross margins; slower-than-expected growth in XR demand.

• Cowell e Holdings (1415.HK)

  Beneficiary: Consolidating position in Apple's supply chain and securing more projects due to leadership in COB/FC technology.

  Strengths

  Leading in both COB and FC technologies; collaborating with Luxshare on AI optics (Micro LED/CPO).

  Weaknesses

  Some investors worry it is purely a consumer electronics stock lacking diversification.

  Comparison

  Compared to Sunny Optical, Cowell e has a deeper foothold in Apple's supply chain and is less impacted by new entrants.

  Risks

  iPhone/iPad shipments below expectations; slower-than-expected market share acquisition; stagnation in camera specification upgrades.

• Apple Inc. (AAPL.US)

  Technology Driver: Achieving product miniaturization by introducing COB technology, enhancing competitiveness of wearables and iPhones.

  Strengths

  Strong supply chain management capabilities; brand premium; ecosystem stickiness.

  Weaknesses

  Uncertainty regarding demand for new products (e.g., foldables, all-glass models).

  Comparison

  -

  Risks

  Continuously rising memory costs; trade tariff risks; acceptance of Apple Intelligence lower than expected.

Key data

• Sunny Optical Target PriceHK$63.00Based on end-of-2026 DCF valuation, WACC 13.2%, terminal growth rate 1.0%
• Cowell e Holdings Target PriceHK$45.00Based on end-of-2026 DCF valuation, WACC 10.6%, terminal growth rate 4.0%
• Sunny Optical Net Cash~21 billion RMB2025 data, supporting future M&A or investment
• Sunny Optical Periscope Lens Share~20%2025 estimated proportion of total smartphone lens revenue
• iPhone COB Adoption Timeline2028May be applied to periscope/ultra-wide cameras

Impact & implications

For the industry, Apple's promotion of COB technology will accelerate trends towards miniaturization and integration of camera modules, raising technical barriers. For Sunny Optical, this means breaking through previous difficulties in entering Apple's core module supply chain, opening up new growth spaces, especially against the backdrop of the boom in AI-powered wearable devices. For Cowell e Holdings, although facing potential competition from new entrants, its first-mover advantage and comprehensive technology allow it to undertake higher-value projects, consolidating its status as a core supplier for Apple. Overall, this technological change benefits top-tier module manufacturers with technical capabilities, and industry concentration may further increase.

Risks

• Smartphone demand recovery slower than expected
• iPhone/iPad shipment volumes falling short of expectations
• Camera specifications ceasing to be a primary upgrade area
• Deterioration of ASP/gross margins for Sunny Optical in smartphone lenses/modules
• Cowell e Holdings acquiring slower-than-expected market share in iPhone rear camera modules
• Apple MR product adoption slower than expected
• Trade tariff risks (lack of final trade agreements between China-US and US-India)

What to watch

• Actual progress of Apple adopting COB technology in TWS and AI glasses
• Whether iPhone periscope/ultra-wide cameras will adopt COB as scheduled by 2028
• Specific timeline and market share for Sunny Optical entering Apple's supply chain
• Business development in Cowell e Holdings' AI optics sector (Micro LED/CPO)
• Demand growth for high-end smartphones (mixed/periscope types)