Technology

AAC Technologies Projects Soaring Profits and Growth Amidst Positive Market Shifts

In a dynamic press conference held in the bustling city of Hong Kong on March 21, AAC Technologies (2018.HK), a leading player in the tech industry, showcased their robust 2023 annual financial achievements. With soaring revenues totaling RMB20.42 billion, they marked a significant stride in profitability underscored by a gross profit margin of 16.9% and considerable net earnings of RMB0.74 billion. The latter half of 2023, known colloquially as "2H 2023," was particularly impressive, as revenues ramped up to RMB11.20 billion—a notable 25.2% increase year-on-year—with gross profit margins climbing to 19.2% and net profits hitting RMB590 million.

Ms. Guo Dan, the esteemed Chief Financial Officer of AAC Technologies, noted during the conference that the sector experienced an uplifting trend driven by heightened demand for mid-to-high-end smartphones in the latter half of 2023. This uptick marked a significant turning point for AAC Technologies, spelling out an optimistic forecast for the near future.

With an anticipation of accelerated growth across various divisions, including acoustics, optics, and precision mechanics, Ms. Guo elaborated on the group's expected performance for 2024. She projected a revenue increase between 10% to 15%, coupled with a comprehensive gross profit margin recovery to over 20%. In particular, Ms. Guo stressed that the group's meticulous advancements in the lucrative automotive business, following the acquisition of Premium Sound Solutions (PSS), are poised to generate revenue between RMB3 to 3.5 billion with a forecasted net profit of approximately RMB0.2 billion.

PSS, a reputable entity covering major high-end European and American automotive brands, is at the forefront of customer relations and innovative product development. Post-acquisition integration will see PSS leading the charge on AAC's automotive business front, highlighting AAC's strategic focus on investment and development of cutting-edge resources, such as algorithms and power amplifiers, to synergize with PSS. This strategic move not only augments AAC's existing prowess but also paves the way for an expedited launch of other product lines into the automotive market and spearheads AAC's global business strategy.

Ms. Guo further intimated a bullish stance on the 2024 global smartphone market, albeit the company remains cautiously optimistic. Bolstered by an upward trend of specification upgrades within the mid-to-high-end smartphone market segments, AAC Technologies expects this pattern to underpin revenue increases and consequently buttress the company’s profit margins.

Advancements in acoustic specifications, as well as rapid development in peripheral fields such as hinges and heat dissipation, are poised to boost not just the acoustics business but also the fields of electromagnetic drives. The acoustic division, according to Ms. Guo, is projected to realize gross margins of 25% to 30% in 2024, while the electromagnetic drives and precision mechanics divisions are expected to hover within a gross margin range of 20-25%.

The presentation also featured a spotlight on the Group's optics business—state of stabilization and improvement for 2024. Notably, the competitive landscape in plastic lenses has found a healthier rhythm, with AAC Technologies shipping an increased count of 5P, 6P, and higher-tier products. Impressive yield rates for WLG hybrid lenses signal a competitive edge; and as Guo highlighted, shipments nearing the 8 million mark, with 3 million units hailing from a single 1G6P category. These lenses, formidable in both optical performance and technological skill, rival the capabilities of the 7P plastic lenses.

This positive trajectory in diverse business units leads to an energized forecast of a revenue uptick of 10% to 15% in 2024. Ms. Guo reasserted that this anticipated comprehensive gross margin improvement echoes the diversity in product mix and the strength of the company's product portfolio, underpinning long-term stable growth.

A Dominant Force in Precision Mechanics

The sector of precision mechanics surely warrants attention, with the 2023 financial report revealing a YoY revenue rise of 34.3% for smartphone metal casing. There's a surge not only in shipment volume but also average selling price. The company has managed to maintain a leader's hold in the market presence across high-end and flagship models.

Diving deeper into precision mechanics, 2H 2023 saw the mass production and delivery of metal hinges—nearly 700,000 units throughout the year. This scale of delivery, alongside a more than 100% increase in heat dissipation product revenue, drew significant attention. Here, one must acknowledge the elevating specifications in the heat dissipation components, driven by incessant advancements in smartphone chip specifications.

As for the hinge and heat dissipation lines, the expectation is set for sustained high-speed growth in the current fiscal year, with the broader precision mechanics division experienced anticipated performance enhancements in the foreseeable future.

Revving Up for Automotive Business Impact

AAC Technologies has not been shy about their proactive moves into the automotive landscape—a venture initiated in 2021 and now showing remarkable potential. Their acquisition of an 80% stake in PSS, a global automotive acoustic giant, showcases a deliberate strategy to integrate PSS's substantial product repertoire, global production prowess, and coveted OEM supplier connections. This synergy aims to fast-track AAC's entrance into the global automotive market, offering inventive and superior audio system solutions.

Leveraging AAC Technologies' expertise, PSS is predicted to contribute between RMB3 to 3.5 billion in revenue to the automotive business, showing both profit and strategic growth. Looking ahead, the automotive domain appears ripe for AAC’s products, reminiscent of the depth seen in their smartphone enterprise.

Beyond acoustics, AAC is casting a wide net across optics and other domains, signaling a broader strategical expansion in automotive. They’ve also marked their territory in the burgeoning AR/VR market, delivering XR acoustic solutions to top global companies, with promising motor-related projects also advancing with clients.

Historical Highs in Financial Performance

Achieving new highs, the Group's operating cash flow peaked at RMB4.63 billion as of December 31, 2023, displaying a 6.0% YoY improvement. Coupled with a 25.4% drop in capital expenditures, AAC Technologies proudly announced a historical record free cash flow span since its initial listing—RMB3.81 billion. The cash reserves sit comfortably at RMB6.82 billion with a conservative net gearing ratio of 5.1%. Reflecting excellent operational efficacy, inventory turnover days have impressively reduced from 109 days to a mere 80 days.

Ms. Guo proudly declared that sound financial health is pivotal in endorsing strategic ventures into new business spheres, fostering a strong backing for PSS's acquisition. Interestingly, this strategic move did not overtly leverage the company—half of it was financed by internal cash flows—a testament to their financial robustness.

A final word from the CFO underscored the Group's dedication to prudent financial stewardship. An unshakeable financial position not only serves as a platform for sustained innovation but also cements the foundation for AAC Technologies' future aspirations and stability.

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SOURCE: AAC Technologies

In conclusion, AAC Technologies' financial narrative speaks volumes about their growth trajectory, innovation, and strategic foresight. With solid financial results under their belt and an optimistic outlook for diverse market segments, the Group is handsomely positioned to rev up their engines and cruise into a prosperous 2024.