20211112-招银国际-瑞声科技-02018.HK-3Q21_in-line__Remain_cautious_on_4Q21_recovery_6页_1mb

AAC Technologies (2018 HK) Company Update Summary

Core Content

AAC Technologies (2018 HK) released its 3Q21 results, which showed a decline in revenue and net profit compared to the same period last year. The decline was attributed to weak domestic smartphone demand, chip shortages, supply chain disruptions, and increased operating costs in China. The blended gross profit margin (GPM) for 3Q21 was 22.7%, which is a decrease of 0.9 percentage points (ppt) YoY and 2.7 ppt QoQ, indicating continued margin pressure due to lower utilization, lack of product upgrades, and intense competition.

The company expects a recovery in optics shipments and GPM in 4Q21E, but analysts remain cautious due to ongoing challenges such as semi shortage, the impact of the pandemic, and weak smartphone demand. These factors are expected to continue affecting optics performance into FY22 and FY23E, with plastic lens ASP pressure and HCM ramping further diluting margins.

Key Financial Highlights

• Revenue (3Q21): $4,246 million, a decline of 6.1% YoY.
• Net Profit (3Q21): $1,582 million, a decline of 58% YoY.
• EPS (3Q21): RMB 1.31, which is $19 - 25%$ below consensus.
• Target Price (TP): HK$37.4, implying a 18.5x FY22E P/E.
• Current Price: HK$33.7, which is trading at 16.7x FY22E P/E and is considered fairly valued.

Segment Performance

• Acoustics: Grew by 1.9% YoY due to US client's peak season.
• MEMS/haptics & casings: Declined by 31% / 7.9% YoY due to Android weakness and competition.
• Optics: Revenue declined by 18% YoY, and the GPM dropped to 15% from 22% in 2Q21, indicating intensified competition in the handset lens industry.
• Haptics & RF: Declined by 7.9% YoY.

Strategic Developments

AAC is accelerating its expansion into the automotive market, offering comprehensive solutions for smart cars, including optics for LiDAR and video cameras, and audio for smart cockpits. The company also announced an investment in SWIR Vision Systems, a next-gen image sensor company, aiming to leverage its WLG technology to enhance competitiveness.

Valuation and Earnings Forecast

• Earnings Revisions: CMBIS trimmed FY21-23E EPS by $19 - 24%$ due to lower GPM and weaker optics revenue.
• New EPS Forecast: FY21E: RMB 1.31, FY22E: RMB 1.68, FY23E: RMB 1.83.
• Consensus EPS: FY21E: RMB 1.61, FY22E: RMB 2.06, FY23E: RMB 2.45.
• CMBIS Valuation: Based on a SOTP (Sum of the Parts) approach, with a weighted average P/E of 18.5x FY22E P/E. The optics segment is valued at RMB 17.9 billion, contributing significantly to the overall valuation.

Financial Summary

• Revenue: Expected to grow from RMB 17,938 million in FY21E to RMB 21,978 million in FY23E.
• Gross Profit: Expected to increase from RMB 4,516 million in FY21E to RMB 5,824 million in FY23E.
• Operating Profit: Expected to grow from RMB 1,643 million in FY21E to RMB 2,483 million in FY23E.
• Net Profit: Expected to increase from RMB 1,582 million in FY21E to RMB 2,217 million in FY23E.
• EPS: Expected to grow from RMB 1.31 in FY21E to RMB 1.83 in FY23E.

Key Ratios

• Gross Margin: 25.2% in FY21E, expected to rise to 26.5% in FY22E and 26.5% in FY23E.
• Operating Margin: 9.2% in FY21E, expected to rise to 11.2% in FY22E and 11.3% in FY23E.
• Net Margin: 8.8% in FY21E, expected to rise to 9.9% in FY22E and 10.1% in FY23E.
• ROE: Expected to increase from 7.0% in FY21E to 9.0% in FY23E.
• ROA: Expected to increase from 4.0% in FY21E to 5.2% in FY23E.

Analyst Recommendation

• CMBIS Rating: HOLD
• Reasoning: The stock is expected to deliver a return of +15% to -10% over the next 12 months, given the cautious outlook on recovery and continued margin pressures.

Shareholding and Performance

• Shareholding Structure:

  • Chunyuan Wu: 21.75%
  • Zhengmin Pan: 19.24%
  • JPMorgan Chase: 10.59%

• Share Performance:

  • 1-month: +4.8%
  • 3-month: -28.5%
  • 6-month: -18.2%

• Stock Data:

  • Market Cap: HK$40,726 million
  • Average 3-month Turnover: HK$272.50 million
  • 52-week High/Low: HK$60.00 / HK$31.15

Disclaimer and Certifications

• The research analyst certifies that the views expressed in the report accurately reflect personal opinions and that there is no direct or indirect financial interest in the securities discussed.
• The report is not an offer or solicitation to buy or sell any securities and is provided solely for informational purposes.
• CMBIS does not provide individually tailored investment advice and recommends that investors consult with a professional financial advisor.