【True Insight Hong Kong Stocks Experts】Apple Intelligence may trigger a replacement wave, pay attention to AAC Technologies (02018.HK).
Last week, the $Hang Seng Index(00HSI.HK) first rebounded and then fell back, continuing to hover between 17,700 and 18,500 points. Although technically, the upward trend that started in mid-April has not been broken, everyone has a psychological shadow over Hong Kong stocks. If the correction is too deep and there is no real rebound for a long time, people will still be worried, and there should be no major catalyst for a significant rise in the short term.
Three weeks ago, the author introduced Apple's supply chain company, Hong Teng Precision (06088.HK), which performed exceptionally well, with its stock price rising nearly 50% in just a few weeks after the introduction. Although the rationale at the time was more attributed to Nvidia (NVDA.US) rather than Apple, later, the $Apple(AAPL.US) WWDC Global Developers Conference also contributed, becoming one of the important catalysts for the rise in Hong Teng Precision's stock price.
The imagination of a replacement wave triggered by Apple's WWDC caused a sharp rise in the stock prices of many Apple supply chain companies. For example, $AAC TECH(02018.HK) saw a significant increase, with a rise of nearly 40% in June alone. From the low point in February this year, the increase is close to 100%.
First, let's talk about the recent situation of AAC Technologies. In April, it released its 2023 financial report. For the full year of 2023, AAC achieved revenue of RMB 20.42 billion, a slight decrease of 1.0% year-on-year. The gross profit margin was 16.9%, down 1.4 percentage points year-on-year, and net profit was RMB 740 million, down 9.9% year-on-year, which is not outstanding. However, looking only at the second half of the year, the performance was good. AAC achieved revenue of RMB 11.20 billion, flat year-on-year. The gross profit margin was 19.2%, up 1.4 percentage points year-on-year and 5.1 percentage points quarter-on-quarter. Net profit was RMB 590 million, up 25.2% year-on-year. The significant improvement in performance in the second half of the year was due to the recovery in demand for mid-to-high-end models and the traditional peak season for consumer electronics industry demand.
In fact, the company's various businesses showed operational improvements in the second half of the year. The main acoustic business achieved revenue of RMB 4.18 billion in the second half, up 25.7% quarter-on-quarter. The gross profit margin was 30.7%, up 1.8 percentage points year-on-year and 5.2 percentage points quarter-on-quarter. In the electromagnetic transmission and precision structural components business, thanks to more high-end flagship and foldable phones adopting the group's motors and metal frames, as well as the volume production of innovative products such as hinges and VC heat dissipation plates, the combined segment revenue in the second half was RMB 4.63 billion, up 27.8% quarter-on-quarter. The gross profit margin was 20.7%, up 1.4 percentage points quarter-on-quarter. In the optical business, second-half revenue was RMB 1.86 billion, up 4.8% quarter-on-quarter, with a gross profit margin of -9.2%, an improvement of 7.8 percentage points quarter-on-quarter.
The comprehensive improvement in business in the second half of the year suggests that a performance inflection point may have emerged. With the recovery of the external environment and the industry, AAC's revenue scale and profitability have resumed growth. It is expected that the company's business performance this year will continue the trend of the second half of 2023, with sustained recovery. In addition, the company's forward-looking layout is beginning to bear fruit. AAC continues to explore the frontiers of smartphone acoustics, with leading technology and efficient operational manufacturing capabilities actively supporting customer technological innovation layouts. For example, the SLS master-level speaker has been widely praised by customers, with related product shipments exceeding 10 million. The high-quality Opera solution, with its significantly increased sound field under the same speaker volume, has also attracted much customer attention. These new technologies have driven the recovery of the average selling price (ASP) of acoustic products, and the products have further expanded their share in the mid-to-high-end market through performance improvements and cost optimization.
On the other hand, Apple's WWDC announced a major upgrade, integrating Siri voice assistant with Apple Intelligence. This means that new iPhones will need to be equipped with more advanced microphone technology to enhance the user experience with the new Apple Intelligence Siri voice assistant. Famous Apple analyst Ming-Chi Kuo expects that the upgrade in microphone specifications could lead to a significant increase in average selling price (ASP) by 100%-150%. This also implies that future AI phones will have higher requirements for microphones in terms of sensitivity, signal-to-noise ratio, spatial positioning and noise reduction, frequency response range, and low power consumption. AAC Technologies, which has been relatively early in the layout of high signal-to-noise ratio products, is continuously promoting its self-developed high-performance MEMS microphones. AI phones may drive the company's MEMS microphone business to become a new growth curve.
In summary, AAC Technologies has shown comprehensive operational improvements, and a performance inflection point may have emerged. The replacement wave and specification upgrades brought by AI phones also present new opportunities for AAC Technologies. In addition, the company has also made extensive layouts and expansions in areas not mentioned in this article, such as smartwatches, automobiles, and VR/AR. It can be seen that AAC Technologies has certain potential prospects. However, AAC Technologies faces significant upward pressure, and its current stock price has reached an important resistance level. It is believed that the stock price will need more time to consolidate before continuing to rise. In terms of valuation, the company will also need to deliver more performance highlights to prove itself. Therefore, friends interested in AAC Technologies may wish to pay more attention to the timing of stock price corrections before making an entry.
Written by: Li Jiacong
Disclosure: The author does not hold any of the above-mentioned stocks at the time of writing.
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