AAC upbeat over record earnings, upgrades in smart devices

AAC Technologies Holdings, the world’s top supplier of miniature audio components for consumer electronics products, expects to benefit from a major upgrade cycle in acoustics in mobile devices from next year, after posting record third-quarter revenue and profit.

In a filing to the Hong Kong stock exchange on Monday, AAC said it was aiming to capture that opportunity “by bolstering research and development, and offering a wider range of innovative products”.

Shenzhen-based AAC reported a 29 per cent increase in net profit in the third quarter to a record 1.1 billion yuan (HK$1.25 billion), up from 851 million yuan in the same period last year, on the back of solid growth across all its major business lines.

That was slightly ahead of the 1.04 billion yuan consensus among market analysts surveyed by Bloomberg.

Total revenue jumped 32 per cent to a historic high of 4.21 billion yuan from 3.18 billion yuan a year earlier, surpassing the consensus estimate of 4.04 billion yuan.

Shares of AAC rose to HK$70.15 in early afternoon trading after the firm announced its results at noon. It slipped to HK$68.80 at the close of trading.

AAC said an upgrade in the audio quality offered by smart devices drove up demand for its so-called dynamic components business, which contributed to 51 per cent of total sales in the quarter to September.

Its non-acoustic product segment accounted for 45 per cent of sales.

For the nine months to September, AAC saw net profit rise 17 per cent year on year to 2.46 billion yuan on a 24 per cent jump in revenue to 9.77 billion yuan.

Chinese customers accounted for more than 40 per cent of the company’s total sales during that period.

Daiwa Capital Markets analyst Kylie Huang said in a report last week that AAC remained one of the top stock picks for the Greater China smartphone space. Daiwa has a “buy” rating on AAC, with a target price of HK$102.

“For AAC, we see average selling price upside from spec upgrades in acoustics and the rising adoption of advanced haptics in [Apple’s] i-devices,” Huang said.

A constituent stock of the Hang Seng Index, AAC has a strong client base that includes international giants like Apple, Samsung Electronics and LG Electronics, and major Chinese smartphone brands, such as Huawei Technologies, Xiaomi, Lenovo Group, ZTE, Oppo Electronics and Vivo.

Its range of micro-component systems includes receivers, speakers and microphones, which are used in the iPhone, iPad and Apple Watch.

Its non-acoustic business includes radio frequency mechanical products that combine antennas with metal casing solutions, as well as proprietary haptics vibrators used in those same three Apple products.

Haptics refers to the technology used in mobile phones and smartwatches that enables a user to feel a tactile sensation when interacting with an application.

“Looking ahead, the fourth quarter is the traditional peak season, driven by higher demand from the company’s diverse customer base,” AAC said. “Starting in 2017, a major trend expected to benefit the company would be an upgrade of acoustics with increasing adoption of speaker boxes, stereo solutions and waterproof features.”

The company has raised its capital expenditure this year to 3.9 billion yuan, up from the earlier guidance of 3 billion yuan, as it adds new manufacturing equipment.

This story has been amended to correct figures relating to AAC’s profit and revenue for the January to September period.