AAC Technologies Performance Interview: Expected revenue to increase by 10-15% in 2024, with PSS automotive business revenue exceeding 3 billion RMB

On March 21, AAC TECH (02018) held its 2023 annual performance media conference in Hong Kong.

In the full year of 2023, AAC TECH's revenue was RMB 20.42 billion, with a gross profit margin of 16.9% and a net profit of RMB 0.74 billion. In the second half of the year, revenue was RMB 11.20 billion, with a gross profit margin of 19.2% and a net profit of RMB 0.59 billion, a year-on-year increase of 25.2%.

AAC TECH's CFO, Guo Dan, stated at the meeting that the demand for mid-to-high-end smartphones in the second half of last year first recovered, leading to a turning point in AAC TECH's performance. It is expected that in 2024, the business performance in acoustics, optics, structural components, and other aspects will continue to improve. The overall revenue in 2024 is expected to increase by 10-15%, and the comprehensive gross profit level will also recover to above 20%.

In addition, AAC TECH's automotive business will also make significant progress. According to Guo Dan, after the completion of the first delivery of the acquired PSS company in February this year, financial consolidation will begin. In terms of automotive business, it will bring in revenue of 3-3.5 billion yuan and achieve a net profit of around 0.2 billion yuan. PSS covers most high-end European and American automotive brands, leading the industry in both customer relationships and product innovation. After integration, PSS will lead the development of the entire automotive business, while AAC itself will focus more on algorithms, power amplifiers, and other internal resources for investment and development, working in synergy with PSS. The acquisition of PSS will also help accelerate the introduction of other products into the automotive field in the future and the global layout of the company's overall business.

Expected revenue increase of 10-15% in 2024, comprehensive gross profit margin above 20%

Guo Dan stated that the outlook for global smartphone shipments in 2024 remains cautious, but there is a trend of upgrading and higher specifications in the mid-to-high-end smartphone market. "For us, we will see better growth in the top line, especially for our ASP, and our profit margin will also have good support."

According to Guo Dan, with the upgrading and higher specifications of mid-to-high-end smartphones, as well as the expansion of new innovative products in the field of acoustics and the rapid development in new areas such as pivot cooling, both the acoustic and electromagnetic drive businesses are expected to benefit. For the acoustic division, a gross profit margin level of 25-30% is expected in 2024; for the electromagnetic drive and precision structural components division, it is in the 20-25% gross profit margin range.

Furthermore, AAC TECH's optical business is expected to stabilize and improve in 2024. In terms of plastic lenses, the optical industry has returned to a relatively healthy competitive situation, with the proportion of shipments of AAC TECH's 5P, 6P, and higher-end products gradually increasing In terms of WLG glass-plastic hybrid lenses, the production yield is steadily increasing. "Our WLG has shipped nearly 8 million units, of which 3 million are 1G6P. Whether it is optical performance or technical difficulty, it is comparable to 7P plastic lenses, demonstrating our technical capabilities."

"With a more positive outlook in different divisions, the group's overall revenue Top line is expected to increase by 10-15% in 2024, and the comprehensive gross profit margin will also recover to a healthy level of over 20%." Guo Dan further stated that compared to a few years ago, this comprehensive gross profit is due to a more diversified layout of different product lines and a more robust product portfolio, which can better support the company's long-term stable development.

Precision structural components sector expected to continue high-speed growth

The financial report shows that in 2023, AAC TECH's revenue from metal middle frames achieved a year-on-year growth of 34.3%, with both shipment volume and ASP seeing double-digit increases. It continued to maintain a leading market share in high-end and flagship models of major customers. In the second half of 2023, the hinge products began mass production, with an annual shipment volume of nearly 700,000 units. In addition, revenue from heat dissipation products grew by over 100% year-on-year in 2023.

Guo Dan stated that the company's precision structural components business has shown good development trends in the past two years, with annual growth of over 1 billion RMB, much of which comes from the high-speed growth of the metal middle frame business. After acquiring Dongyang Kunshan Precision, the company entered the North American customer notebook business, contributing steadily to the business volume in the past two years.

Furthermore, the hinge used in folding machines has become a new growth engine for AAC TECH. According to Guo Dan, in 2023, AAC TECH's hinge revenue increased by over 300 million RMB. In terms of heat dissipation revenue, there was a doubling increase year-on-year in 2023, thanks to the increasing demands for heat dissipation performance due to the enhancement of mobile chip functions.

Guo Dan revealed that AAC TECH is expected to continue high-speed growth in hinge and heat dissipation businesses this year, and the entire precision manufacturing sector will see broader performance improvements in the future.

PSS Company to contribute 3-3.5 billion RMB in automotive business revenue

Zhixun Finance APP learned that AAC TECH has been actively developing its second growth curve in recent years and entered the automotive field in 2021.

Zhixun Finance APP learned at the press conference that in February this year, AAC TECH completed the acquisition of 80% equity of Premium Sound Solutions (PSS) Company, a globally renowned automotive acoustics product supplier. Guo Dan stated that by combining PSS Company's rich products, global production layout, and solid supply relationships with global OEM manufacturers, AAC TECH will provide innovative high-quality audio system solutions to accelerate penetration into the global automotive industry.

"We expect PSS Company to bring in revenue contributions of 3 to 3.5 billion RMB this year, achieving a net profit of around 200 million RMB," Guo Dan said In terms of further layout in the automotive field, AAC TECH management stated that there are actually many similarities between the automotive business and the mobile phone business. In the future, the company will not only focus on acoustics but will also enter into optics or other areas, with a more extensive development layout.

In addition, in the AR/VR business, AAC TECH's XR acoustic solutions have been shipped to many global XR leading companies, and the motor-related business is also progressing in an orderly manner in cooperation with customers.

Free cash flow of RMB 3.81 billion, the highest level since listing

It is worth mentioning that as of December 31, 2023, AAC TECH's operating cash flow was RMB 4.63 billion, a year-on-year increase of 6.0%, reaching a new high in nearly 5 years. Capital expenditure was RMB 1.38 billion, a year-on-year decrease of 25.4%; free cash flow was RMB 3.81 billion, the highest level since listing. Cash on hand was RMB 6.82 billion, with a net debt-to-equity ratio of 5.1%. Inventory turnover days decreased from 109 days to 80 days.

"We believe that a strong cash position can better support the company's long-term strategic layout in new business areas and is also very helpful in supporting PSS company acquisitions." According to Guo Dan, after AAC TECH's acquisitions, the company's leverage ratio did not increase significantly, with half of the acquisitions being supported by the company's own cash flow, making the overall financial situation very robust.

Guo Dan emphasized that AAC TECH will continue to adhere to a prudent financial management policy, rigorously managing capital expenditures and operating expenses. A stable financial condition is crucial for AAC TECH's sustainable development, laying a solid foundation for future innovative growth