Maintaining Neutral Rating; Bullish on Strong IoT Business Growth in 2026

Overview

This report summarizes notes released by Goldman Sachs following the 'Asia Communacopia + Technology' conference in Hong Kong on May 18-19, 2026. The report outlines management's views on Sunny Optical, with the core conclusion being the maintenance of a 'Neutral' rating and a target price of HK$82.3. Although management is optimistic about the long-term prospects of the smartphone camera business and expects strong revenue growth in the IoT segment in 2026 due to the 普及 of AI applications, the firm believes current valuations already reasonably reflect these factors and that the smartphone market is trending towards saturation.

Core views

Regarding the smartphone business, management noted that rising memory prices are suppressing terminal demand for smartphones. However, Sunny Optical primarily serves global leading smartphone brands, which possess stronger supply chain management capabilities and bargaining power, making them more resilient compared to smaller and medium-sized brands. In the long term, continuous upgrades in smartphone camera specifications will support improvements in the company's average selling price (ASP) and profit margins. Upgrades in the product mix will also help mitigate the negative impact of rising memory prices on the company's overall growth. Regarding the IoT business, management stated that Sunny Optical covers a diverse range of IoT end products, including handheld cameras and drones. As the adoption rate of AI applications in IoT end products increases, the importance of optical components is growing. Management expects strong revenue growth in the IoT business in 2026, and the company will leverage its accumulated experience in camera design and manufacturing to capture growing terminal demand in the IoT market. Regarding valuation and stance, although the firm is optimistic about Sunny Optical's long-term potential in AI edge devices, AI/AR glasses, and sports/360 cameras, it maintains a 'Neutral' rating considering the saturation of the smartphone market and the fact that current valuations are at a reasonable level (based on a 2026 expected P/E of 21.6x, consistent with its 5-year trading range).

Analysis framework

The firm's analytical approach is primarily based on bottom-up fundamental verification and valuation matching. First, it obtains management's latest outlook on the two core business segments (Smartphone and IoT) through conference notes, specifically focusing on resilience against macro headwinds (rising memory prices) and the certainty of new growth drivers (AI-driven IoT). Second, it combines industry common sense to judge the defensiveness of customer structure advantages (top brands vs. SME brands) during cyclical fluctuations. Finally, it employs a relative valuation method (P/E), comparing the target P/E ratio with the company's historical trading range and its correlation with net profit growth rates, to conclude that the valuation is reasonable, thereby determining the Neutral rating.

Methodology notes

• Valuation MethodPE/PEG valuation

  Determining target P/E multiple based on the correlation between P/E ratio and year-over-year net profit growth

  The research report determines a 2026 expected P/E of 21.6x as the valuation anchor by observing the correlation between the company's historical Price-to-Earnings (P/E) ratio and its Net Income (NI) year-over-year growth rate, combined with the company's 5-year trading range. This is a common relative valuation method aimed at ensuring the valuation multiple matches the company's growth.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Transmission of the impact of upstream raw material price fluctuations on downstream brands and midstream component manufacturers

  The research report analyzes how rising prices of memory chips (upstream) affect smartphone (downstream) demand, and further deduces how this pressure is transmitted through the supply chain to midstream optical component manufacturers. It also points out that since Sunny Optical primarily serves top brands with strong bargaining power, this negative transmission is buffered to some extent.

Asset mapping & comparison

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

• Sunny Optical (2382.HK)

  Direct coverage target; benefits from camera specification upgrades and IoT business expansion

  Strengths

  Serves global leading smartphone brands with strong supply chain resilience; deep accumulation in camera design and manufacturing

  Weaknesses

  Affected by demand suppression due to smartphone market saturation and rising memory prices

  Risks

  Intensified competition in mobile phone lenses; camera module shipments falling short of expectations; RMB exchange rate fluctuations

Key data

• Target PriceHK$82.3Calculated based on a 2026 expected P/E of 21.6x
• Target P/E21.6xCorresponds to 2026 expected earnings, within the company's 5-year trading range
• Current Share PriceHK$62.65Closing price as of May 19, 2026

Impact & implications

The research report believes that Sunny Optical has maintained business resilience amidst smartphone market saturation by serving top-tier clients and upgrading product specifications. The IoT business is expected to become a new growth engine, particularly against the backdrop of increasing AI application penetration. However, as the current share price already reflects these positive factors and valuations are within a historically reasonable range, there is a lack of catalysts for significant re-rating in the short term. Therefore, investors are advised to maintain a neutral stance while focusing on structural opportunities brought by long-term technological iterations.

Risks

• Competition in the mobile phone lens sector is lower or higher than expected
• Growth rate of camera module shipments is faster or slower than expected
• Rate of market share gain in mobile phone lenses is faster or slower than expected
• Improvement rate of operating expense ratio is faster or slower than expected
• RMB appreciation or depreciation

What to watch

• Actual revenue growth of the IoT business in 2026
• Changes in the adoption rate of AI applications in IoT end products
• Shipment performance and supply chain strategies of global leading smartphone brands
• Sustainability of smartphone camera specification upgrades and their contribution to ASP