AAC Technologies (2018 HK) 1Q21: Stable Outcomes Backed by Quantity Development and Margin Enlargement. AAC’s 1Q21 net income surged 9.1x yoy to Rmb532m, regular with our expectation and on the midpoint of its income alert.
- The yoy profits spike was once particularly as an end result of a low base, in addition to sturdy effectivity in its dynamics factors and optics companies. Going ahead, product improvements and standardized modules will proceed to spice up dynamic’s elements’ margins whereas its optics business enterprise will proceed to ramp up. Keep HOLD. Goal value: HK$43.30. Entry value: HK$37.00.
- 1Q21 earnings grew 20.6% yoy and declined 10.3 pp. qoq to Rmb4,292m. AAC Applied sciences’ (AAC) yoy development used to be specially pushed via the dynamic elements, MEMs and optics segments which seen 47.9%/42.2%/175.1% yoy growths respectively, with the immoderate development as an end result of a low-base impact.
- This used to be partly offset by means of a 27.2% yoy decline in haptics and precision elements. The qoq decline was once chiefly as an end result of seasonality.
- Gross margins increased 8.0ppt yoy and three.1ppt qoq to 31.1%, which used to be greater than anticipated. The surge in gross margins was once exceptionally attributable to dynamic factors which seen an 11.4ppt yoy and 5.5ppt qoq increase to 37.4%.
- On the same time, optics’ margins proceed to ramp up from 21.4% in 4Q20 to 27.8% in 1Q21, with plastic lens’ gross income margin achieving 36% (vs 28% in 4Q20).
Web income grew 909.6% yoy then again declined 29.6% qoq to Rmb532m, steady with our expectations and on the midpoint of its income alert range of Rmb510m-550m.
Dynamics factors organization (acoustics) was once pushed by means of Apple. The sturdy effectivity of acoustics used to be exceptionally as an end result of a delayed top season for Apple, due to the fact the iPhone launch was once delayed in 4Q20. This helped the segment with the aid of way of every ASP and margins. Going ahead, administration expects gross income extent and margins to continue to be excessive, regardless of seeing risks with a slowing 2Q21 as an end result of on-going chip scarcity. They’re looking forward to an offset the low season via way of product enhancements as more Android phone producers are looking out for stereo acoustic merchandise.
- Haptics continues to be on an uptrend, and precision mechanics factors had been the key intent in the back of the earnings decline. Administration stated that haptics merchandise is on the other hand on an uptrend, and the key contributor to the enterprise’ decline was once from precision mechanics factors (casing), as an end result of: a) ASP cuts from regarded one of its primary shoppers, and b) volume decline as one different client is exiting the market. In the lengthy run, administration is looking for to penetrate into unique digital product segments equal to notebooks and sensible residing domestic equipment. Nonetheless, we reflect on consideration on the technique shall be gradual and the organization will apparently continue to be slow inside the shut to time period.
- Ramp-up of optics agency mostly constant with schedule, with plastic lens gross margins accomplishing 36.3% in 1Q21 from 28% in 4Q20, and 6P lens accomplishing 12% of gross income quantity. Wafer stage glass (WLG) output extent is targeted at 5m gadgets monthly, which is slower than in the past guided, on the other hand the mission furnishes (one each and every delivered in 1Q21 and 4Q21) stays on monitor.
- AAC is in talks for 3-5 more initiatives. Administration stated that the digital digicam module corporation has ramped up unexpectedly in 1Q21 and reached 20% of optics enterprise’ gross sales, whereas gross margins have already reached immoderate single digit. The section has moreover become profitable in 1Q21 and administration believes that there shall be extra room for margin enhancements for all three merchandise (plastic lens, WLG lens and digital digicam modules). EARNINGS
- No changes to earnings. VALUATION/RECOMMENDATION • Keep HOLD and purpose cost of HK$43.30, especially primarily based on 18x 2021F PE, pegged to 0.5SD under mean (down from 20x, or on par with imply).
We be counted on AAC’s salary to get higher from 2021 onwards, alternatively we reflect on consideration on AAC’s employer nevertheless faces risks amid an exchange with semiconductor shortages. The massive contribution from the low-end and mid-range 3p-5p handset lens devices moreover skill it has extended publicity to conceivable fee wars, which poses an immoderate probability of draw lower back risks to our estimates. Entry value: HK$37.00.