20221111-招银国际-瑞声科技-02018.HK-3Q22_beat_boosted_by_seasonal_demand_pull-in_8页_1mb

AAC Tech (2018 HK) Summary

Core Content and Key Information

AAC Tech reported its 3Q22 results, showing strong performance driven by seasonal demand for iPhone and a robust EMD&PM segment. The company's revenue grew by 27% YoY to RMB 5.37bn, surpassing expectations. The blended gross margin (GPM) improved slightly to 19.0%, up 0.7ppts QoQ, primarily due to better margins in the EMD&PM segment. Net profit reached RMB 234mn, a 27.5% YoY increase, while EPS was RMB 0.20, 10% above consensus.

The stock is currently trading at HK$17.40, with a new target price of HK$15.40, implying a 13.0x FY23E P/E. This valuation is considered fair, and the recommendation is to Maintain Hold.

Segment Performance

• Acoustics: Revenue grew 5.6% YoY to RMB 2.32bn, with a GPM of 26.9%, slightly down 0.8ppts QoQ.
• Optics: Revenue increased 45% YoY to RMB 567mn, but became loss-making with a -14% GPM. Plastic lens shipments dropped 24.9% QoQ, and the GPM for plastic lenses was approximately -2%. The company expects destocking to continue, with DOI (Days of Inventory) at 4-5 months, and a plan to reduce annual shipment targets for high-end products.
• EMD&PM (Haptics & Mechanical RF): Revenue surged 47% YoY to RMB 2.06bn, with a GPM of 21.5%, up 1.3ppts YoY and 0.4ppts QoQ. The segment benefited from new "acoustics+haptic" combo products and the launch of x-axis haptics motors for Android customers.
• MEMS Components: Revenue rose 66.1% YoY to RMB 421mn, but GPM dropped significantly to 7.4%, due to a change in product mix and higher chip costs.

Financial Highlights

Key Takeaways from Analyst Call

• 3Q22 Review: Revenue of RMB 5.37bn (+26.5% YoY), GPM of 19.0% (-3.7ppts YoY), and net profit of RMB 234mn (+27.5% YoY).
• Optics: Continued destocking, with a -39.0% QoQ in revenue and -14% GPM. Plastic lens shipments fell 24.9% QoQ.
• EMD&PM: Strong performance, with revenue up 47.3% YoY and 43.6% QoQ. The segment's GPM improved to 21.5%.
• MEMS: Revenue increased 66.1% YoY, but GPM dropped 7.9ppts YoY due to product mix and chip cost issues.

Earnings Revisions

AAC Tech revised its earnings forecasts for FY22E to FY24E, with the following changes:

Valuation and Target Price

• Target Price (TP): HK$15.40, based on a SOTP valuation with a weighted-average P/E of 13.0x FY23E P/E.
• Valuation Methodology:
  • Acoustics: 13x P/E
  • MEMS: 10x P/E
  • ED&PM: 13x P/E
  • Optics: 15x P/E
• Current P/E: 15.1x FY23E
• TP Implication: The stock is fairly valued at 15.1x FY23E P/E, and the TP is aligned with peers.

Strategic Diversification

AAC Tech is expanding into automotive and AR/VR segments. The company confirmed multiple cases with leading China EV customers and tier-ones for automotive acoustics. The new 3P VR pancake module will be completed within the year, indicating a strategic focus on AR/VR. Additionally, CAPEX is expected to decline to RMB1.5-2bn in FY23E, reflecting reduced investment in the optics segment.

Financial Summary

• Net Cash from Operations: Increased to RMB 7,306mn in FY22E, showing improved operational performance.
• Capital Expenditure: Declined to RMB3,678mn in FY22E, with further reductions expected in FY23E.
• Cash at the End of the Year: RMB12,171mn, indicating a positive cash flow.

Conclusion

AAC Tech's 3Q22 performance was driven by seasonal demand and strong EMD&PM growth, but optics continued to be a drag due to intense competition and lower utilization. The company is diversifying into automotive and AR/VR, which could provide growth opportunities in the future. Despite the positive earnings and fair valuation, the smartphone market weakness and loss-making optics segment are expected to continue affecting earnings recovery. The Hold recommendation remains valid with a new TP of HK$15.40, implying a 13.0x FY23E P/E.