20201116-招银国际-瑞声科技-02018.HK-3Q20_another_miss__Optics_likely_to_improve_but_hard_to_move_the_needle_6页_1mb

AAC Technologies (2018 HK) Company Update Summary

Core Content

AAC Technologies reported a 3Q20 net profit decline of 32% YoY to RMB425 million, 25%/32% below CMBIS estimates and consensus, respectively. The decline was primarily driven by:

• Weaker revenue (-10% YoY) due to iPhone launch delays, Huawei's ban, and a de-spec trend.
• Lower gross profit margin (GPM) at 23.6%, below the estimated 27.0%.
• Slower optics ramp and weaker margin (24.6% vs. 35% guided), contributing to the overall underperformance.

Main Points

Revenue and Profitability

• 3Q20 revenue was RMB4.5 billion, reflecting a -10% YoY growth.
• GPM was 23.6%, well below the estimated 27.0%.
• Net profit was RMB425 million, -39% YoY.
• EPS for 3Q20 was RMB0.35, -39% YoY, and -25% below consensus.

Segment Analysis

• Optics: Shipments reached 40-50kk/m, up from 30-40kk/m in 2Q20, but still below management guidance of 80-90kk/m. GPM improved to 24.6% but remained below the 35% target.
• Dynamic components: Revenue mix remained stable at ~48% of total revenue.
• MEMS components: Revenue mix increased to 8% in 3Q20, up from 6% in 2Q20.
• Haptics & RF: Revenue mix decreased to 34% in 3Q20, down from 40% in 2Q20.
• Others (incl. optics): Revenue mix increased to 11% in 3Q20, up from 9% in 2Q20.

Outlook for 2021

• Better iPhone volume is expected, but no segment upgrades are anticipated, leading to continued ASP/margin pressure.
• Casing segment (15% of sales, primarily Huawei-related) is expected to decline due to 2H20 Huawei impact.
• 4Q20E net profit is projected to decline 25% YoY, despite 2% YoY revenue growth.

Key Information

Earnings Revisions

• CMBIS trimmed FY20-22E EPS by 11-21%, resulting in FY20E EPS at RMB1.09, FY21E EPS at RMB1.63, and FY22E EPS at RMB1.88.
• These are 26% and 28% below consensus for FY20 and FY21, respectively.

Target Price

• New Target Price (TP) is set at HK$43.2, based on SOTP (Sum of the Parts) valuation.
• This reflects a 23.7x FY21E P/E and a fair valuation at 24.7x FY21E P/E.
• The TP is HK$43.2, a -4% downside from the previous TP of HK$47.5.

Valuation Overview

• SOTP-based valuation includes:
  • Acoustics: RMB13.6 per share (20x P/E).
  • MEMS: RMB1.8 per share (20x P/E).
  • ED & PM: RMB11.3 per share (20x P/E).
  • Optics: RMB12.1 per share (82% of RMB17.9 billion valuation).
• Total TP is HK$47.5, implying 22.4x FY21E EPS.

Financial Summary

Income Statement Highlights

• Revenue is projected to grow by -0.7% in FY20E and 11.6% in FY21E.
• Gross profit is expected to grow by -17.2% in FY20E and 21.0% in FY21E.
• Operating profit is expected to grow by -46.3% in FY20E and 64.6% in FY21E.
• Net profit is expected to grow by -40.8% in FY20E and 49.9% in FY21E.

Balance Sheet Highlights

• Total assets are projected to increase from RMB29.869 billion in FY18A to RMB33.661 billion in FY22E.
• Total liabilities are expected to rise to RMB11.252 billion in FY22E.
• Shareholders’ equity is projected to grow to RMB22.408 billion in FY22E.
• Net debt/total equity is expected to remain around 0.1x.
• Current ratio is expected to stay around 1.4x.
• ROE is projected to be 10.2% in FY22E.

CMBIS Ratings and Recommendations

• Maintain HOLD with the new TP of HK$43.2.
• Upside risks: Better optics margin and stronger iPhone shipment.
• Downside risks: Continued ASP/margin pressure in optics and casing segments due to Huawei impact and competition.

Shareholding and Stock Performance

• Shareholding structure:

  • Chunyuan Wu: 21.75%
  • Zhengmin Pan: 19.24%
  • JPMorgan Chase: 11.51%

• Stock performance:

  • 1-month: -0.9% (Absolute), -6.7% (Relative).
  • 3-month: -22.9% (Absolute), -25.6% (Relative).
  • 6-month: +10.0% (Absolute), +1.9% (Relative).

Market and Financial Data

• Market Cap: HK$54.262 billion.
• Average 3-month turnover: HK$443.38 million.
• 52-week high/low: HK$72.90 / HK$35.61.
• Total issued shares: 1,209 million.
• Current price: HK$44.9.
• Yield: 1.4% in FY20E, 2.0% in FY21E, and 2.3% in FY22E.
• ROE: 20.0% in FY18A, 11.3% in FY19A, and 10.2% in FY22E.
• ROA: 12.7% in FY18A, 7.2% in FY19A, and 6.8% in FY22E.

Conclusion

AAC Technologies continues to face challenges in maintaining profitability due to external factors such as iPhone launch delays, Huawei's ban, and de-spec trends. While optics is expected to improve, the progress is slower than anticipated, and ASP/margin pressure is likely to persist. CMBIS maintains a HOLD rating, citing a fair valuation and moderate upside risks. The new TP of HK$43.2 reflects the current market conditions and management guidance, with potential for recovery in future quarters if demand stabilizes and margin pressures ease.