舜宇光学科技(02382) 　　We spoke to Sunny Optical, and provide a company update here. Thecompany highlights meaningful HoH/YoY margin increase in 2H16, driven bydual camera lens/vehicles lens growth. Mgmt anticipates the magnitude ofprofit increase will surpass top line growth in 2017, driven by marginexpansion on improved product mix. The rising OIS bundle rate on smartphonedual camera will further enhance its market share expansion in both lens andCCM segments owing to its vertical integration and optical alignment knowhow.Reiterate Buy rating. 　　Sunny achieves initial break-through in dual-camera lens set. It has beenqualified by Chinese handset customers with shipment starting from Oct.Driven by the favorable product mix change, mgmt expects lens set GPM to hit40%+ in 2H16 vs. 35% in 1H16. Also, Sunny is engaged in the optical zoomtype (3 times) dual cameras design with several customers. Sunny believesimproving sales mix towards high-end product will lead to margin expansion incoming year. 　　Propelled by key customers' new premium dual camera phone launch (HuaweiMate9), Sunny indicates that 10MP+ CCM shipment will account for 60%+ oftotal CCM shipment in 2H16. Due to higher precision requirement, Sunny iswinning shares from its major competitor (Lite-On, in our view) on Huaweihigh-end projects, and gets dominant order allocation (50%+), thanks to itsoptical alignment technology strength. The firm is generating at least low teens GPM from dual CCM projects, which will accelerate overall CCM margingrowth. Mgmt has seen rising OIS dual camera demand and believes the ASPhike (30%+ higher) will accordingly stimulate CCM revenue increase in 2017. 　　Our TP of HKD40, still based on 0.7x PEG (or 22x PER), in line with regionalpeers. We believe this valuation is justified by an improving sector growthoutlook and Sunny’s market share gain potential. Downside risks: marketshare loss and fiercer-than-expected competition in the CCM field.