Hong Kong-listed AAC Technologies seen as beneficiary as Apple rolls out new iPhone 7

PUBLISHED : Monday, 28 March, 2016, 8:30pm
UPDATED : Monday, 28 March, 2016, 8:30pm

AAC Technologies, a leading supplier of electronic micro-component systems, is expected to see accelerated growth later this year as client Apple Inc embarks on significant upgrades to its much-anticipated iPhone 7.

Analysts expect Hong Kong-listed AAC’s growth prospects related to Apple would be clearer in the third quarter, when the US technology giant traditionally introduces its latest smartphone model.

Ken Hui, equity analyst at Jefferies, said in a report that AAC has “guided this year to be more back-end loaded than in 2015, suggesting confidence on the dollar content increase and market share for AAC in the iPhone 7.”

Hong Kong-listed AAC is a global supplier of 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.

AAC, based in Shenzhen, produces a range of micro-component systems include receivers, speakers and microphones, which are used on the iPhone, iPad and Apple Watch.

It also has non-acoustic parts, such as radio frequency (RF) mechanical products that combine antennas with metal frame solutions as well as proprietary haptics vibrators, used in those same three high-margin products.

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 potentially make haptics part of many everyday applications.

“For haptics,we continue to expect higher average selling price in the iPhone 7 with a more complicated design,” Hui said.

BNP Paribas analyst Laura Chen said in a report that various media sources have reported that potential new features for the iPhone 7 include “waterproof housing, hi-fi speaker, thinner design, integrated Lightning connector for charger and headphone, faster microprocessor and higher

memory density”.

“We think AAC could benefit from potential average selling price upgrade on rising waterproof receiver and speaker box demand,” Chen said.

She pointed out that Apple remains AAC’s biggest client, making up about 40 per cent of its revenue.

Daiwa Capital Markets analyst Kylie Huang said in a report that AAC’s haptics and RF mechanical products would be “major revenue drivers [for the company] in 2016”.

“We expect AAC’s first-quarter revenue to reach 2.5 billion yuan (HK$2.98 billion) ... up 10 per cent year on year, which would be better than the decline for most of the companies in the iPhone supply chain,” Huang said.

AAC last week posted record annual earnings for the sixth consecutive year on the back of strong demand for its non-acoustic micro-components, which made up 38 per cent of total sales last year.

The company recorded a 34 per cent increase in net profit last year to 3.11 billion yuan, up from 2.32 billion yuan in 2014. Total revenue grew 32 per cent to 11.74 billion yuan from 8.88 billion yuan in 2014.