20230324-招银国际-瑞声科技-02018.HK-4Q22_slightly_below__recovery_remains_bumpy_8页_1mb

AAC Tech (2018 HK) Summary

Core Content and Key Information

AAC Tech reported its 4Q22 financial results, showing a net profit increase of 12% YoY to RMB 237 million, slightly below both the company's and consensus estimates. This was primarily due to a widening loss in the optics segment, which also led to a lower gross profit margin (GPM) of 16.6%, well below expectations. Despite this, revenue exceeded expectations with a 21% YoY growth, driven by strong sales from overseas customers and increased revenue from the EMD&PM and optics segments.

The company's management expressed confidence in improving profitability and efficiency in FY23E through cost control and reduced capital expenditures (CAPEX). However, ongoing smartphone demand weakness and the continued loss from the optics segment are expected to hinder earnings recovery in the near term.

The stock currently trades at a P/E ratio of 15.1x for FY23E, which is considered fair given the earnings uncertainties. The analyst recommends maintaining a "Hold" rating with a new target price (TP) of HK$15.58, implying a 14.1x FY23E P/E multiple.

Main Revenue Segments and Performance

• Acoustics: Revenue grew 6.3% YoY to RMB 2.38 billion. GPM improved to 31.2%, up 4.4 ppts YoY, driven by strong overseas sales and share gains. Automotive acoustic solutions began mass production and shipment in 4Q22.
• Optics: Revenue increased 55.6% YoY to RMB 798 million, with a 40.8% QoQ growth. Annual HCM shipment rose by 121.5% YoY. However, the GPM dropped to -51.5%, and the segment continues to be a drag on profitability.
• EMD&PM: Revenue grew 27.5% YoY to RMB 2.29 billion. GPM improved to 22.2%, up 2.5 ppts YoY and 0.7 ppts QoQ. This was attributed to increased market share in Android x-axis haptics and higher shipment of high-value metal casing products.
• MEMS Components: Revenue rose 49.5% YoY to RMB 356 million. GPM improved to 13.9%, up 1.4 ppts YoY and 6.6 ppts QoQ, due to strong overseas demand and increased market penetration of Android MEMS products.
• Haptics & RF: Revenue grew 28% YoY to RMB 2.295 billion. The segment showed a positive trend with improved GPM.

Valuation and Earnings Outlook

The analyst's new target price of HK$15.58 is based on a SOTP (Sum of the Parts) valuation method, reflecting the company's diversification into non-handset businesses. The TP implies a 14.1x FY23E P/E multiple, which is in line with the company's overall fair valuation of 15.1x FY23E P/E.

The analyst's earnings forecasts for FY23E to FY25E are as follows:

• Revenue: RMB 21,393 million (FY23E), RMB 22,418 million (FY24E), RMB 23,398 million (FY25E)
• Gross Profit: RMB 4,318 million (FY23E), RMB 4,511 million (FY24E), RMB 4,696 million (FY25E)
• Operating Profit: RMB 1,083 million (FY23E), RMB 1,144 million (FY24E), RMB 1,182 million (FY25E)
• Net Profit: RMB 1,179 million (FY23E), RMB 1,312 million (FY24E), RMB 1,376 million (FY25E)
• EPS (RMB): 0.98 (FY23E), 1.09 (FY24E), 1.15 (FY25E)

The analyst's estimates are slightly below the consensus for FY23E and FY24E, with a 3% and 12% difference respectively, but align with the consensus for FY25E.

Key Takeaways from Analyst Call

• 4Q22 Revenue: RMB 5.84 billion, up 21.4% YoY.
• Net Profit: RMB 237 million, up 12.0% YoY.
• GPM: 16.6%, down 3.9 ppts YoY.
• Optics Segment: Continued to be a drag on profitability despite revenue growth.
• Management Confidence: Management remains optimistic about improving profitability and efficiency in FY23E.
• Diversification Strategy: The company is focusing on expanding into automotive and AR/VR markets, with meaningful growth expected in automotive acoustics and design-in projects for x-axis haptics in AR/VR.

Financial Highlights

• Revenue Growth: 3.7% in FY23E, 4.8% in FY24E, and 4.4% in FY25E.
• GPM: 20.2% for FY23E, 20.1% for FY24E, and 20.0% for FY25E.
• Operating Margin: 5.1% for FY23E, 5.1% for FY24E, and 5.0% for FY25E.
• Net Margin: 5.5% for FY23E, 5.9% for FY24E, and 5.9% for FY25E.

Shareholding and Performance

• Shareholding Structure: Wu Chunyuan (21.9%), Pan Zhengmin (19.5%).
• Market Cap: HK$20,246.2 million.
• Share Performance:
  • 1-month: -5.6% absolute, -1.6% relative.
  • 3-month: -1.3% absolute, -0.8% relative.
  • 6-month: 26.7% absolute, 17.4% relative.

Conclusion

AAC Tech's 4Q22 results showed revenue growth but continued challenges in the optics segment. The company is diversifying into non-handset businesses such as automotive and AR/VR, with management confident in improving profitability. The current valuation is considered fair, and the analyst maintains a "Hold" rating with a new TP of HK$15.58.