20181113-信达国际控股-瑞声科技-02018.HK-Another_miss,_near_term_outlook_blurred_7页_673kb

AAC Technologies Summary

Core Content

AAC Technologies, a leading miniature acoustic component supplier for handheld devices, reported a disappointing 3Q18 result. Revenue and net profit dropped by 8.5% and 28.7% YoY to RMB4,869mn and RMB973mn respectively, below market consensus. The company also missed its gross margin target, which rebounded only 190bps QoQ to 37.1%, still below the FY18E forecast of 38.6%. The poor performance is attributed to sluggish smartphone demand and an unfavourable product mix, particularly in the acoustics, haptics, and precision mechanical segments.

Main Points

• 3Q18 Performance: AAC's revenue and net profit fell short of expectations, with a 12.8% and 26.8% YoY drop respectively compared to Bloomberg consensus.
• Market Share Shift: There is a noticeable market share re-shuffling among acoustics peers, with Luxshare showing strong growth while Goertek experienced a decline.
• Near Term Outlook: The company's outlook is unclear, as management did not provide revenue or GM guidance for 4Q18 and FY19E, indicating a more cautious stance.
• Spec Upgrades: AAC is still expected to benefit from continuous spec upgrades in speaker/receiver boxes, increasing adoption of speaker boxes in mid-low end Chinese smartphones, and the use of SLS technology in Android devices.
• Optics Segment: Optics sales grew ~2x YoY to RMB174mn, but the adoption of 3D sensing remains slow. The segment faces potential competition from new players like O-film.
• Share Buyback: AAC repurchased 4mn shares in November, temporarily boosting the share price, but the buyback is unlikely to have a significant long-term impact due to the blurred near-term outlook.
• De-rating: AAC's rating was downgraded to Neutral, with a target price (TP) of HK$49.00, based on a FY19E 11.3x PE, reflecting a 25% discount to peers.

Key Information

• Current Price: HK$53.10
• Target Price: HK$49.00
• Upside/Downside: -7.7%
• Market Cap: HK$64,888.2 million
• Major Shareholder: Benjamin Pan (43%)
• Auditors: Deloitte
• Result Due: March 2019
• Key Customers: Apple and Nokia
• Revenue Mix: About 60% from smartphone and tablet-related business

Financial Overview

Income Statement (RMB mn)

• Revenue (3Q18): RMB4,869mn
• Gross Profit (3Q18): RMB1,804mn
• Operating Profit (3Q18): RMB1,216mn
• Net Profit (3Q18): RMB973mn

As % of Sales

• Gross Margin (3Q18): 37.1%
• Net Margin (3Q18): 20.0%

Financial Forecast Revisions

• Revenue (FY18E): RMB19,856mn (down 23.9% from previous forecast)
• Operating Profit (FY18E): RMB5,143mn (down 29.8%)
• Net Profit (FY18E): RMB4,376mn (down 29.9%)
• EPS (FY18E): RMB3.52 (down 29.3%)

Earnings Growth (CAGR)

• FY17-FY20E: 2% CAGR (down from 17.0% previously)

Peer Comparison

Risk Factors

• Slow iPhone Sales: Potential slow sales of new iPhones during the peak season.
• End-Demand Issues: Worse-than-expected demand for tablets and smartphones.
• Product Ramp-Up: Slower-than-expected ramp-up in new product offerings such as optical lens and 3D glass casings.
• Haptics Adoption: Slower adoption of haptics and acoustics upgrades in the Android market.
• Pricing Pressure: Pressure from overseas players and domestic peers.

Conclusion

AAC Technologies faces challenges due to sluggish demand and market share re-shuffling. Despite some positive factors like spec upgrades and new product adoption, the near-term outlook is unclear, leading to a downgrade and a lower target price. The company's financial performance has been impacted, and while it has a strong market position, the risks and uncertainties in the market may limit its growth prospects.