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AAC Technologies (2018 HK) - Outlook improving, Optics progress a key upside driver

作者: Kevin CHEN,Clint SU
時間: 2019年11月08日
重要性: 一般報告
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摘要: Report title:AAC Technologies (2018 HK) - Outlook improving, Optics progress a key upside driver
Analyst:Kevin CHEN,Clint SU
Report type:Company
Date:20191108
[Summary]

■ AAC reported sequential revenue/margin improvement for 3Q19; outlook is improving on better customer demand, product mix
■ Optics could be the key upside catalyst in 2020; raise estimates and TP to HKD50, maintain NEUTRAL

3Q19 sequential revenue and margin improvement

Revenue rose 31% qoq (+3% yoy) to RMB5bn in 3Q19 (vs. RMB4.9bn consensus), driven by growth across segments. Acoustic shipments grew while ASP decline narrowed, helped by 1) better adoption of SLS (60% of Android shipments, from 50% in 2Q19); 2) smartphone product refresh. GM expanded 4.6%pt qoq to 29.6%, with improvement in all segments except Precision Mechanics (ASP pressure). Net profit doubled qoq to RMB695mn (EPS0.58), missing consensus but beat our estimate 11%.

Outlook improving, Optics a bright spot in 2020

AAC continues to show signs of improving outlook, helped by better-than-expected customer demand and product mix. iPhone 11 sales have seen solid demand, while SLS adoption and upgrade continues to rise among Android customers. For Optics, management is confident of its monthly shipment target of 60mn plastic lens shipment by December, which would help GM to improve meaningfully. Monthly shipment may reach 100mn in March/April 2020. Mass production of WLG is also scheduled to start next year, with ~10 projects in advanced stages.

The worst is likely behind, but challenges remain

While we believe AAC already passed its near-term bottom in 2Q19, we believe its recovery could be a bumpy ride given challenges still ahead. Acoustic and haptics still face intense competition from Luxshare (002475 CH) and GoerTek (002241 CH), with 10-15% price erosion each year and worse pressure for legacy products. Optics could be AAC’s key upside catalyst next year, but competition remains intense against incumbents Sunny Optical (2382 HK) and Largan (3008 TT).

Raise estimates/TP to HK$50, maintain NEUTRAL

AAC shares trade at 17x 2020E P/E (vs. its 16x average), reflecting near-term positives and improving outlook. Concerns over its structural issues remain. We watch for its Optic progress before turning more positive. We lift our TP to HKD50 (from HKD40) on better revenue/margin outlook, while applying a mid-cycle valuation of 17x (previously 14x).

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