20220513-招银国际-瑞声科技-02018.HK-1Q22_miss__Margin_pressure_to_continue_into_2H_7页_1mb

AAC Technologies (2018 HK) - Company Update Summary

Core Content Overview

AAC Technologies (2018 HK) reported its 1Q22 financial results, which showed a decline in earnings and gross profit margin (GPM) compared to the same period in 2021. The company's revenue growth was slightly above expectations, but the overall performance was impacted by margin pressure, optics destocking, and a shift in product mix towards lower-margin segments.

Main Points and Key Information

Financial Performance in 1Q22

• Revenue: RMB 4.896 billion, up 14% YoY, above expectations.
• Gross Profit: RMB 957 million, down 28% YoY, with a GPM of 19.5%, a historical low.
• Net Profit: RMB 205 million, down 61% YoY.
• EPS (RMB): 0.17, down 61% YoY.
• Key Factors: Weaker product mix, optics destocking, and ASP pressure in acoustics/haptics/casings. Higher mix of lower-margin CCM (camera modules) also contributed to margin pressure.

Segment Analysis

• Acoustics: Revenue up 6.4% YoY to RMB 2.23 billion. GPM dropped to 26.6% (vs 37.4% in 1Q21) due to ASP pressure from overseas customers.
• Haptics & RF: Revenue up 22% YoY to RMB 1.5 billion. GPM at 19.6%, down 5.9% YoY.
• Optics: Revenue up 36.4% YoY to RMB 924 million. GPM at 3.5%, down 24.0% YoY, due to a higher mix of lower-margin CCM and reduced plastic lens shipment.
• MEMS Components: Revenue down 16.1% YoY to RMB 237 million. GPM at 14.1%, down 2.6% YoY.

Guidance for 2Q22 and Beyond

• Revenue: Expected to decline QoQ due to seasonality.
• GPM: Anticipated to improve gradually in 2H22E due to better yield and cost control.
• FY22-24E EPS: Revised down by 14–29% due to margin pressure and shipment downside.
• Net Profit in 2Q22E: Expected to decline 62% YoY.
• Target Price (TP): Revised to HK$14.0, implying a 15.3x FY22E P/E, compared to the current P/E of 17.5x.

Business Strategy and Diversification

• Non-smartphone Acoustics: Expected to account for 5% of Android acoustics in 2022.
• Automotive Acoustics: Mass production to start in 2022, with some projects entering MP in 2023.
• AR/VR: x-axis haptics motors entered the supply chain for a leading market player.
• Plastic Lens Shipment: Increased 15.9% QoQ to 135 million units.
• Camera Module Shipment: Rose 129% QoQ to 42 million units, with a higher proportion of high-end products.

Market Outlook

• Optics Segment: Expected to continue facing margin pressure due to ongoing weak smartphone demand and lack of upgrades.
• WLG (Wireless Loudspeaker): Project MP in 2H22, with annual shipment target cut to ~50 million units.
• VCM (Voice Coil Motor): 50M AF to enter MP in 2022.

Financial Summary

• Revenue: FY22E estimated at RMB 18.915 billion, FY23E at RMB 20.601 billion, FY24E at RMB 21.435 billion.
• Gross Profit: FY22E estimated at RMB 3.914 billion, FY23E at RMB 4.638 billion, FY24E at RMB 4.861 billion.
• Operating Profit: FY22E at RMB 1.032 billion, FY23E at RMB 1.399 billion, FY24E at RMB 1.491 billion.
• Net Profit: FY22E at RMB 923 million, FY23E at RMB 1.312 billion, FY24E at RMB 1.415 billion.
• EPS (RMB): FY22E at 0.76, FY23E at 1.09, FY24E at 1.17.

Valuation and Target Price

• New TP (Target Price): HK$14.0, based on SOTP (Sum of the Parts) valuation.
• P/E Multiple: 15.3x FY22E P/E, with different multiples assigned to each segment: 15x for acoustics and MEMS, 15x for haptics & mechanical RF, and 20x for optics.
• Current Price: HK$18.46.
• TP vs Current Price: Downside of 12%.

Shareholding and Stock Performance

• Shareholding Structure:
  • Chunyuan Wu: 21.80%
  • Zhengmin Pan: 19.40%
  • JPMorgan Chase: 11.87%
• Stock Performance (3 months):
  • Absolute: -28.9%
  • Relative: -10.6%

Key Ratios

• Gross Margin: FY22E at 20.7%, down from 24.7% in FY21A.
• Operating Margin: FY22E at 5.5%, down from 8.4% in FY21A.
• Net Margin: FY22E at 4.9%, down from 7.5% in FY21A.
• ROE: FY22E at 4.0%, down from 6.9% in FY20A.
• ROA: FY22E at 2.2%, down from 3.9% in FY20A.
• Current Ratio: FY22E at 2.0x, expected to increase to 2.4x in FY24E.
• Inventory Turnover Days: FY22E at 75 days, down from 88.6 days in FY21A.
• Payable Turnover Days: FY22E at 70 days, down from 84.7 days in FY21A.

Conclusion

AAC Technologies is experiencing margin pressure and shipment challenges in 1Q22, primarily due to a shift in business strategy and product mix. While revenue growth is positive, the company's gross profit margin reached a historical low. The company is diversifying into automotive and AR/VR markets, with some progress in these areas. Despite these efforts, the overall outlook remains cautious due to macroeconomic weakness and continued smartphone demand issues. The revised target price of HK$14.0 reflects a more conservative valuation, and the stock is currently trading at a fair value according to the analysis.