Sunny Optical’s rating is derived from its leading market position in the global optoelectronic industry, an exceptional financial profile with a net cash position and its involvement in the promising markets for vehicle lenses and augmented reality/virtual reality (AR/VR)-related products. On the other hand, Sunny Optical’s rating is constrained by its high business concentration risk as well as high exposure to the cyclical smartphone industry.
KEY RATING RATIONALES
Credit Strengths
Leading market position in the global optoelectronic industry. Sunny Optical maintains a leading market position in the global optoelectronic industry. As the world's top manufacturer of optical components and products, the company retained its position as the largest supplier of handset lens sets, vehicle lens sets, and handset camera modules globally in terms of shipment volume in 2023, despite challenging market conditions characterized by weak smartphone shipments and camera de-specification. Building on its inclusion in Apple's supply chain and proactive strategy in the vehicle-lens market, Sunny Optical is poised to further solidify its dominance in handset-related products and gain market share in the vehicle-lens segment.
Vehicle lens and AR/VR-related businesses to drive revenue and profit growth. Sunny Optical is well-positioned to capitalize on the burgeoning vehicle lens market, leveraging its industry-leading scale and advanced technology expertise in optoelectronic products. We anticipate the company's vehicle-lens business to experience steady growth in 2024 and 2025, driven by the increasing adoption of multiple lenses per vehicle and the upgrading of lens specifications for advanced driver assistance systems (ADAS). Meanwhile, the augmented reality/virtual reality (AR/VR) segment is expected to sustain double-digit revenue growth in the coming years, fuelled by the promising outlook for mixed reality (MR) applications. As a result, we believe that the vehicle-lens and AR/VR-related businesses will emerge as key drivers of sales and profit growth in the next few years, offsetting the weakness in handset-related product shipments.
Exceptionally strong financial profile. Sunny Optical has consistently maintained a net cash position since 2019, with a sustained deleveraging trend. The company's strong operating cash flow and prudent financial discipline have driven a steady decline in its gross debt to total capitalization ratio, which fell to 20.2% in 2023 from 22.5% in 2022. Looking ahead, we expect Sunny Optical to sustain a robust leverage profile, characterized by a net cash position, over the next three years. Furthermore, we forecast the company's gross debt to total capitalization ratio to remain below 20% from 2024 to 2026, underscoring its commitment to a disciplined financial management approach.
Credit Weaknesses
High business concentration. Sunny Optical is subject to high geographic, customer and supplier concentration risks. The majority of the company’s revenue is generated in China. Besides, Sunny Optical also has a concentrated customer and supplier base. The aggregate sales attributed to the company’s five largest customers amounted to 46.6% of its total sales and the aggregate purchase attributed to the five largest suppliers was 41.1% of its total purchases in 2023. While Sunny Optical has a stable relationship with major smartphone manufacturers and automobile manufacturers, the slowed-down procurement from main customers or changes from main suppliers might impact the company’s profitability and cash flow generation capability.
High exposure to the cyclical smartphone industry. Sunny Optical’s revenue in the handset related product segment accounted for 68% of its total revenue in 2023. In other words, the company’s revenue and profit relies heavily on the well-being of the global smartphone industry. Any major technological changes and the cyclicality of downstream demand might therefore have a substantial impact on the demand for Sunny Optical’s products. Nevertheless, we believe that the company’s strong research and development capabilities create product differentiation and help to mitigate the corresponding industry risks.
Note: ratings mentioned above are unsolicited.
ANALYSTS CONTACT | ||
Primary Analyst Winnie Guo +852 3615 8344 Secondary Analyst Jameson Zuo +852 3615 8341 Committee Chair Larissa Wu +852 3615 8317 |
MEDIA CONTACT
Rating Services Contact
Allen Wei
+852 3615 8324
allen.wei@cspi-ratings.com
Date of Relevant Rating Committee: 25 June 2024
Additional information is available on www.cspi-ratings.com
Related Criteria
General Corporate Rating Criteria (15 March 2018)
Corporate Financial Adjustments and Ratio Definitions (7 May 2018)
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