CONSUMER ELECTRONICS
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Hong Kong company reporting season

AAC tipped for revenue gain from Apple’s new iPhone launch

Electronic component supplier saw 9 per cent profit growth after record second-quarter sales

PUBLISHED : Friday, 26 August, 2016, 9:54pm
UPDATED : Friday, 26 August, 2016, 9:54pm

AAC Technologies, a leading supplier of electronic micro-component systems to Apple and other major smartphone brands, forecast strong quarterly growth and further business expansion after reporting higher-than-expected earnings in the first half of this year.

Shares of AAC rose 1.74 per cent to close to a record high HK$82 on Friday, following its interim financial results announcement.

In its filing to the Hong Kong stock exchange, AAC reported a 9 per cent increase in interim net profit to 1.35 billion yuan (HK$1.57 billion), up from 1.24 billion yuan in the same period last year, on the back of improved sales of its acoustic micro-components and the highest second-quarter sales in the company’s history.

In a media briefing, AAC managing director Richard Mok said the company’s order book was solid and the pipeline of new business remains strong.

“The company is in a leading position to capitalise on the mobile device market’s accelerating demand for audio performance upgrades and increasing adoption of integrated radio frequency (RF) mechanical solutions,” Mok said. “The company sees good opportunity for further customer diversification and will continue to build a strong technology foundation for its non-acoustic [product] segments.”

Shenzhen-based AAC supplies miniature acoustic and non-acoustic components to Apple, Samsung Electronics, LG Electronics and major Chinese smartphone brands, including Huawei Technologies, Xiaomi, Lenovo Group, ZTE, Oppo, Coolpad and Meizu.

The company reported a 26 per cent annual rise in turnover in the second quarter to 3.02 billion yuan.

The company sees good opportunity for further customer diversification
Richard Mok, managing director at AAC

Total interim revenue grew 18 per cent to 5.56 billion yuan from 4.71 billion yuan a year earlier.

AAC’s range of audio micro-component systems includes receivers, speakers and microphones, which are used on the iPhone, iPad and Apple Watch. Sales of these components made up 61 per cent of total sales in the first six months of this year.

It also has non-acoustic parts, such as RF mechanical products that combine antennas with metal frame solutions, as well as proprietary haptics vibrators.

Haptics refers to the technology used on mobile phones and smartwatches that enable a user to feel a tactile sensation when interacting with an application. Video game controllers have used this technology for years, but its adoption for so-called smart wearable devices could make haptics part of many everyday applications.

Jefferies equity analyst Ken Hui forecast annual revenue growth of 24 per cent for AAC in the second half of this year.

“We continue to see upside ... with higher-than-expected share in iPhone 7 haptics,” Hui said.

Apple is widely rumoured to be preparing for the launch of its new iPhone 7 models in the next few weeks.

Kylie Huang, an analyst at Daiwa Capital Markets, said in a report that AAC is expected to enjoy “a 50 to 60 per cent average selling price (ASP) increase for the coming new iPhones over the current models, if not more, which is higher than our earlier estimate of 30 to 50 per cent increase.

“For haptics, we expect the ASP increase from spec upgrades to offset [initial] iPhone volume

weakness.”

Mok pointed out that the development of “internet of things, virtual reality and augmented reality have also opened up new opportunities for the company.”

He said those technologies will “surround the smartphone with innovative, interesting applications to facilitate interactions with the world at large.”

He added: “As the devices get thinner and lighter, performance, product design and mechanical integration become essential considerations.”