What changes will SUNNY OPTICAL undergo with Gan Jiang at the helm?

Wang Wenjie takes the helm. This veteran with 35 years of experience in the optical field, a promoter of the optical industry’s development, can he lead Sunny Optical Technology (02382) to achieve a second takeoff?

According to Zhitong Finance, on November 25th, Sunny Optical Technology announced that Mr. Sun Yang has resigned as executive director and CEO due to health reasons, and Mr. Wang Wenjie will succeed him, effective from November 26, 2024. Prior to his appointment, Wang Wenjie served as the company's executive director and executive vice president, and has entered into a service agreement with the company, with his term requiring rotation and re-election at least once every three years according to the company's articles of association.

This leadership change at Sunny Optical Technology is mainly an internal personnel adjustment. Both Sun Yang and Wang Wenjie are veterans of the company and have contributed to its development, but why is the board changing leadership at this time? Zhitong Finance believes that in addition to the objective health reasons mentioned in the announcement, it also reflects the decision-makers' expectations for the company's future development.

With an academic background in economics, Sun Yang has been recognized as the company's executive director since 2009 and has served as CEO since then. During his tenure, the company achieved rapid growth, including being the global leader in automotive lens sales, ranking among the top two in mobile camera module sales, and second in mobile lens sales.

However, with the arrival of the AI era, both internal and external environments in the industry are undergoing unprecedented and drastic changes. How to drive the company's innovative transformation, avoid falling into the trap of large companies, and achieve the "elephant dance" has become the most important strategic proposition for Sunny Optical. Against this backdrop, Wang Wenjie, who is well-versed in the optical field, has a good industry reputation, holds high prestige within the company, and possesses strong pioneering capabilities, has become the best candidate.

Looking at Wang Wenjie's resume, his 35-year career has witnessed and led Sunny Optical from obscurity to an industry giant. In 1989, Wang Wenjie graduated from the Department of Optical Instrument Engineering at Zhejiang University and joined Sunny Optical, becoming the first university graduate introduced by the company. In 2003, he led Sunny Optical into the optoelectronic field, focusing on the development of CCM products, and propelled the company to become a leader in the optical field. Since 2013, he has entered the decision-making level of Sunny Optical, serving as an executive director and directly participating in board decisions. In 2017, he was elected as the vice president of the Chinese Optical Society, reflecting the industry's recognition of his professional capabilities and influence, and showcasing Sunny Optical's unassailable position in the industry.

Wang Wenjie’s Appointment May Bring Three Major Changes

Unlike Sun Yang's background in capital, Wang Wenjie has been deeply involved in the frontline of Sunny Optical's business. From 2005 to 2013, he served as the general manager of Ningbo Sunny Optoelectronic Information Co., Ltd., gaining a deep understanding of customer needs. Moreover, he has held important positions in the Chinese Optical Society, possessing strong industrial resource integration capabilities (including associations, high-tech enterprises, and research institutions).

Zhitong Finance has learned from multiple sources that the management team represented by Wang Wenjie may promote the company's development through three dimensions in the future: first, a customer-centric approach, focusing on customer needs and exploring new growth opportunities; second, implementing digital management, paying attention to AI development and applications, utilizing AI to enhance operational efficiency, and improving manufacturing technology and capabilities; third, enhancing organizational vitality, emphasizing talent cultivation, and achieving a culture of collective upward movement and co-creation From the first dimension, Sunny Optical's business includes optical components (such as automotive and mobile phone lenses), optoelectronic products (such as automotive modules, XR vision modules, and robotic vision modules), and optical instruments (such as intelligent detection equipment and microscopes). The company's customer sectors mainly include the automotive, XR, robotics, and mobile phone industries, all of which are high-tech industries driven by the wave of AI development, leading to shortened product iteration cycles and strong demand for upstream components.

In the first ten months of this year, the company's core automotive lenses and mobile phone lenses both achieved good growth levels, with automotive lenses maintaining a double-digit growth rate in monthly shipments. Mobile phone lenses, focusing on mid-to-high-end products, were somewhat affected in monthly shipments but continued to grow in the first ten months due to industry demand. Other lenses and modules performed impressively, achieving high double-digit growth levels, while other optoelectronic products saw a doubling of shipment growth in October.

As the second largest business segment, the demand for automotive products is substantial. The company has developed ADAS automotive lenses with automatic heating functions and has secured designated projects from automotive brand manufacturers, further solidifying its industry-leading position in the high-end advanced driver assistance system sensing market. The company continues to explore market opportunities in the fields of LiDAR, head-up displays (HUD), and intelligent car lights, strengthening product and patent layouts while continuously seeking differentiated breakthroughs in technology.

Additionally, the company will seek development opportunities in the automotive module business, deepening ecological cooperation with mainstream platform solution providers such as Mobileye, Horizon, Qualcomm, and NVIDIA, and successfully developing reference design solutions to become the preferred supplier for leading customers in developing autonomous driving technology. For example, in the environmental perception product line, the market share of the 8-megapixel automotive module continues to maintain the global number one position.

The second dimension aligns with national policies, as new productive forces driven by AI are accelerating penetration in 2024, with various industries speeding up transformation. Sunny Optical has been deeply engaged in the technology field, seizing the trend of AI development. On one hand, it leverages AI technology to empower product iteration and upgrades, such as in automotive modules and robotic vision, gaining customer recognition; on the other hand, it utilizes AI for digital management to enhance operational efficiency and profitability.

In fact, the company has been striving to improve its profitability. In the first half of 2024, the company's sales expense ratio and administrative expense ratio were 1.2% and 2.99%, respectively, both showing a year-on-year decline. The net profit margin for shareholders was 5.72%, an increase of 2.66 percentage points year-on-year, with an annualized ROE of 9.14%, up 5.2 percentage points year-on-year.

The third dimension considers the company's long-term sustainable development. The long-term development of the company relies on talent, and Wang Wenjie, with a technical background, understands the importance of talent. In the AI era, the product and technology iteration cycles are shortening. To gain a first-mover advantage in the industry, the company will continue to increase R&D investment. In the first half of 2024, the company's R&D expenditure was 1.468 billion yuan, a year-on-year increase of 21.82%. In 2025, it is expected that under Wang Wenjie's leadership, R&D spending will maintain a high growth trend and feedback into performance growth through product output It is worth noting that Wang Wenjie has a profound understanding and practical experience in capital market operations and corporate management. In addition to the three aspects mentioned above, the new management team is expected to fully utilize the existing ample cash resources and adopt merger and acquisition strategies to accelerate corporate expansion, particularly in strengthening the integration of the industrial chain and investing in artificial intelligence-related fields. As of June 2024, the company has cash and cash equivalents of 9.603 billion yuan and short-term deposits of 1.795 billion yuan, totaling as much as 11.398 billion yuan.

Performance Certainty Valuation Bottom or Reversal

From the existing data, the fundamentals of SUNNY OPTICAL are expected to reach a turning point in 2024, with all business segments achieving high growth.

In the first half of the year, the company's core mobile-related products, automotive-related products, AR and VR-related products, and other lens products achieved growth rates of 13.45%, 16.43%, 111.5%, and 71.73%, respectively. From the market perspective, the core markets of China, Europe, and North America also achieved double-digit revenue growth. The Q3 shipment data for the second half of the year performed well, and Q4 is expected to maintain a growth trend, with the annual growth rate likely to continue at the pace of the first half.

In terms of profitability, optical components, optoelectronic products, and optical instruments have all demonstrated strong profit levels, with profit margins of 17.2%, 4.26%, and 27.51%, respectively. As the penetration rate of mid-to-high-end products in mobile phone lenses and AI-related products increases, profitability is expected to further rise. In 2025, the automotive, robotics, and smartphone sectors will experience a wave of AI transition, significantly increasing the demand for lenses and modules, giving the company a high degree of performance certainty.

Major investment banks are optimistic about the company's development prospects. For example, China International Capital Corporation (CICC) released a research report stating that it is focusing on the optical upgrades of new Android devices and the optimization of the company's product structure, maintaining the company's net profit forecast for 2024/2025 at 2.47 billion yuan/2.87 billion yuan. First Shanghai's research report noted that the company's product mix continues to optimize, profitability has significantly improved, and it is continuously investing in automotive and AR/VR, securing multiple designated projects, giving it a buy rating.

Additionally, after three years of valuation adjustments, SUNNY OPTICAL's market performance has become stable and gradually warmed up since the second half of the year, but the current valuation remains at a relatively low level. The company has been enhancing investors' confidence in holding shares through the implementation of a repurchase plan and a stable dividend strategy. According to Choice data, since 2007, the company has distributed dividends 17 times, with a dividend payout ratio of 22.06%. Against the backdrop of increased regulatory scrutiny on the market value management of listed companies, the new management team may enhance repurchase efforts and improve public awareness of the company's value, thereby increasing shareholder return value.

In summary, the leadership change at SUNNY OPTICAL is both an acknowledgment of past performance and an expectation for future development. The company's fundamentals have already reversed in 2024, with a high degree of certainty in performance growth, and the valuation has entered a bottom "batting" zone. The direction of the new management team after the leadership change is worth paying attention to, and it remains to be seen whether the valuation can reverse its trend