AAC reported FY23 revenue of RMB20.4bn (-1.0% YoY) and net income of RMB740mn (-9.9% YoY), above consensus estimates mainly due to exchange gains and other income. FY23 GPM came in at 16.9%, largely in line, and 2H23 GPM recovered to 19.2% (+1.4ppts YoY/+5.1ppts HoH), driven by demand recovery and product upgrades. For FY24E, mgmt. guided 10-15% YoY sales growth (+20-30% YoY including PSS), driven by: 1) an optics GPM turnaround in 2H24E on market recovery, spec upgrades and WLG ramp-up; 2) auto biz PSS integration to bring auto synergy; 3) acoustics/haptics/casing/hinges to benefit from model launches and market share gains, and 4) AI phone upgrades in acoustics and cooling parts. Overall, we lift our FY24/25E EPS by 29/50% to reflect the PSS deal and stronger margin and business outlook. While we are positive on AAC's business outlook, the stock now trades at 20.2x/16.2x FY24/25E P/E, which is fair in our view. Maintain Hold with a new SOTP-based TP of HK$22.44, implying 18.0x FY24E P/E
FY23 earnings beat on across-the-board margin recovery. By segment, acoustics/ED&PM/optics/MEMS revenue posted -15%/+13%/+13%/-18% YoY changes. In particular, optics segment reported narrowing loss in 2H23 due to improving ASP/margin and premium product ramp-up. Mgmt. stated that plastic lenses turned profitable in 1Q24 and guided a positive GPM in 2H24/FY24E. ED&PM delivered solid growth supported by further share gains for haptics/metal frames/foldable phone hinges. FY23 GPM came in at 16.9% with strong margin recovery in 2H23 across the segments, benefiting from demand recovery and product upgrades.
FY24E outlook: optics margin improvement, ED&PM upgrade and PSS consolidation. For FY24E, mgmt. guided 10-15% YoY sales growth (+20- 30% YoY including PSS), driven by 1) optics margin to turn positive in 2H24/FY24E on better HCM GPM, ASP hikes and an improving scale; 2) accelerated growth in acoustics/haptics/casing/foldable phone hinges; 3) PSS consolidation to boost sales synergy in auto acoustics business. Overall, we estimate FY24E revenue/net profit to grow +30%/+82% YoY.
Recent rally reflected most positives; maintain HOLD on fair valuation. For FY24E, while we are positive on AAC's earnings recovery, we believe the recent rally has reflected its positives and its current valuation at 20.2x/16.2x FY24/25E P/E is fair. Maintain HOLD with a new SOTP-based TP of HK$22.44, implying 18.0x FY24E P/E. Near-term catalysts include key customer's new model launch and customer share gains.