Sunny Optical Is a Bigger Beneficiary of Smartphone Upgrade Than AAC Technologies

We have fine-tuned our forecasts but kept our fair value estimates for both Sunny Optical and AAC Technologies unchanged at HKD 107 and HKD 17, respectively, as we remain cautiously optimistic about a recovery in smartphone demand and camera upgrades in 2024. While we believe in a meaningful recovery in 2024 based on upbeat industry data and excitement over Huawei’s next flagship smartphone launch, we reckon Sunny’s shares are undervalued as Sunny should capture the most of the direct benefits from the camera arms race between Huawei and Apple in the long run, which is not fully priced in. On the other hand, we believe AAC’s shares are overvalued as we are concerned that AAC’s less advanced product mix is not enough to benefit from the recovery of the high-end market and will continue to suffer from increased competition, while the market is too optimistic about the recovery. We think artificial intelligence in digital photography is neutral to smartphone camera makers.