AAC Technologies's CFO Guo Dan: Expects 15% Growth in Revenue of Main Business while the Growth of the Group May Exceeds 30% After PSS Consolidation

HONG KONG,Aug. 27,2024 -- On August 22,AAC Technologies (02018.HK) held its 2024 interim results presentation in Hong Kong,delivering remarkably impressive performance.

(Left) Ms. GUO Dan,CFO and Mr. Richard Mok,Managing Director of AAC Technologies

According to the Interim Report,in the first half of 2024,AAC Technologies achieved a revenue of RMB 11.25 billion,hitting a new high since its listing,with a year-on-year revenue growth of 22.0% anda gross profit margin of 21.5%,up by 7.4 percentage points year-on-year. The net profit amounted to RMB 537 million,representing a significantincrease of 257.3% year-on-year. Notably,PSS,which was announced to acquire last year,contributed a consolidated revenue of approximately RMB 1.5 billion in the first half of the year,with a gross profit margin of approximately 25.0%.

During theinterview,Ms. Guo Dan,the CFO of AAC Technologiesstated that in the first half of 2024,all business segments of AAC Technologies made positive progress,significantly enhancing profitability and maintaining a continuous growth in gross profit margin. More importantly,the performance of the interim results indicatedthe potentialgrowth value brought by the Company's strategic transformation. It is expected that the operating revenueof the Group(excluding PSS)for the yearwill increase by 15% compared to last year. Additionally,the consolidation of PSS is expected to contribute approximatelyRMB 3 billion. Overall,the total revenue of the Group for 2024 is projected to grow by over 30% year-on-year,with a gross profit margin in the range of 22% to 25%.

Benefittingfrom the surge in AI smartphone upgradesin the next 1-2 years

At the interim results presentation,AI smartphones took center stage as a key topic. Guo Dan believes that AI smartphones are still in the early stages,with software-driven enhancements propelling hardware upgrades. There has already been a trend of increased shipments and overall improvement in ASP for product categories such as acoustics,mechanics and microphones. Looking ahead,with the further development of AI smartphones and functionalities,hardwarecomponentis expected to continue to advance in the coming years.

"AI smartphones have great potential for innovation. In the next 1-2 years,we will see some changes,with an acceleration of changes in the 3-5 year period,bringing us many opportunities and driving multiple product lines,"Guo Dan stated. She cited examples such as new trends in hardware like foldable and ultra-thin form factors,and the Company's unique innovative speakers,and Combo (two-in-one product,which integrates a speaker and an actuator)can better meet market demands.

Moreover,AI smartphones have higher power consumption and require better heat dissipation solutions. AAC Technologies has industry-leading advantages from material sourcing to lean manufacturing processes and simulation design. Additionally,as the demand for human-machine interaction in AI smartphones increases,requiring more precise voice commands and functionalities,this will further drive the Company's MEMS microphone upgrades,boosting prices and profit margins.

The Group's overall gross profit margin is expected to increase to 22%-25%for FY2024

Guo Dan revealed that with the seasonal impact of more new product releases in the second half of the year,performance is expected to be stronger than the first half. It is anticipated that the full-year business performance (excluding PSS) will achieve a growth of over 15% compared to last year. With PSS contributing approximately RMB 3 billion,the Group's revenue in 2024 is projected to grow by over 30% year-on-year,with the comprehensive gross profit margin increasing from 21.5% in the first half of the year to a range of 22%-25%.

"Since the second half of last year,the entire industry has entered a healthy trend of increasing specifications and configurations. The Company has seen improvements in ASP and overall profit margins in areas such as acoustics,optics,and mechanics,"Guo Dan stated. Particularly in the automotive sector,there will be a steady growth trend in the medium to long term. "It can be said that AAC is now a company with multiple growth driversand solutions across various platforms. As we forecast the overall growth for the next few years,we maintain a positive outlook."

The acoustics business is expected to exceed a scale of RMB 10 billion and build a comprehensiveuser experience across all scenarios

Guo Dan mentioned that the gross profit margin of AAC Technologies' acoustics business has resumedto a healthy growth trajectory. The gross profit margin in the first half of the year was 29.9%,and it is expected to rise to over 30% for the full year.

"At the interim results presentation,the Company's management also discussed how AAC Technologies,originally a micro-acoustic supplier for consumer electronics,has further established industry standards for a comprehensiveuser experience across all scenarios through the acquisition of PSS. Acoustic solutions will be a key driver for the next phase of growth in the acoustics business. In terms of scale,the acoustics business is the Company's first to exceed a revenue scale of over RMB 10 billion,and in the next five years,we can expect thisimportant business line with a revenue scale of RMB 20 billionanda sustainable gross profit margin of over 30%."

Definite progress in the WLG projects of multiple key customers

In terms of the opticsbusiness,Guo Dan believes that the opticsmarket has transitioned from a relatively competitive state a few years ago to a period of healthy development.

The gross profit margin for optics in the first half of the year was approximately5%,with plastic lens gross profit margin at 16-17%. Shipments of 6P and higher specification lenses accounted for 15%-16% of total shipments,with expectations of reaching 15-20% in the second half of the year. "In terms of value,it has already surpassed 30% or even 35%,which reflects our technical capabilities,customer coverage,and recognition."

Guo Dan disclosed that AAC Technologies'gross profit for optics will further improve in the second half of the year. "It is foreseeable that the profit for a single quarter will turn positive,with a high probability of occurring in the fourth quarter. Overall profitability will see significant improvementcompared to last year,with continued steady growth in the future."

"Especially with G+P glass-plastic hybrid lenses and WLG lens products,there have been definite advancements in majorprojects with several key customers,"Guo Dan stated. The industry now widely acknowledges that G+P glass-plastic hybrid lenses are indeed a superior solution. The Company's unique WLG technology finds applications in areas such as smartphones and automotive,creating value across multiple domains. "Next year,G+P glass-plastic lenses and WLG single lenses will gradually become one of the most crucial technologies and value supports in the entire opticsbusiness,with many deliveries to customers aligning with our expectations for WLG technology investments."

The interim results performance reflects the Company's long-term growth value

"Looking at the first half of this year,the electromagnetic actuatorsand haptic business have already reached a gross profit margin of approximately30% with the optimization and upgrade of product portfolios on the Android side,and this healthy level is expected to be sustained in the future,"Guo Dan stated. With the boost from the development of new products like actuators and drives,this sector is poised to return to a high-growth trajectory.

"At the interim results presentation,the Company's management also mentioned that in the heat dissipation segment,AAC Technologies achieved a business scale of RMB 150 million in the first half of theyear,with a gross profit margin of over 30%. With the development of AI-enabled applications,the scale is expected to exceed RMB 1 billion in the future. When combined with precision mechanics,the overall scale could reach RMB 5 billion and potentially even surpass RMB 10 billion in the long term."

"Additionally,theoverallgross profit for the sensor and semiconductor business will continue to increase in the second half of the year,"Guo Dan mentioned. Over the next two to three years,driven by factors such as the value enhancement brought by AI smartphones,the advantages brought by the Company's resource platform,and the increase in self-developed product penetration rates,the sensor and semiconductor business is expected to experience rapid development.

Guo Dan concluded,"Atthe interim results presentation,the management also pointed out that this performance has shown investors that AAC has achieved revenue growth,as well as gross and net profit improvements through strategic transformation at the current stage. However,more importantly,the interim results impliedthe long-term growth value of each major business line,and we encourage everyone to focus on the certainty of sustained long-term growth."

CONTACT: Bunny Lee,[email protected]