AAC delivered 2H24 revenue/NP growth of 44%/114% YoY, with earnings 2%/8% above our/consensus estimates, thanks to strength across all segments and strong GPM at 22.5% (vs 19.2%/21.5% in 2H23/1H24). Looking into 2025, we are positive on AAC as a major beneficiary of spec upgrade (acoustics/optics/MEMS/VC) for AI smartphones/AI glasses and global share gains in auto acoustics. Overall, we lift our FY25-26E EPS estimates by 10%/7% to factor in FY24 results, better GPM outlook and spec upgrade opportunities across multiple edge AI devices in 2025-26. Our new SOTP-based TP of HK$58.78 implies 25.2x FY25E P/E. Reiterate BUY. Near- term catalysts include AI glasses/phone upgrade, auto client wins and GPM expansion.
　　Strong 2H24 driven by all segments and GPM improvement. AAC posted strong 2H24 earnings of 114% YoY growth, in-line with prior profit alert. 2H24 revenue growth of 44% YoY was ahead of our/consensus by 2%/8% driven by strength across all segments 1) acoustics: 14% YoY due to demand recovery , key customers’ share gains and high-end acoustic penetration; 2) ED&PM: 31% YoY driven by x-axis motors, metal hinges, and vapor chambers in flagship and foldable phones; 3) Optics: 50% YoY thanks to spec high-end lens upgrade (6P/WLG) and HCM shipment/ASP growth (32MP/periscope). 2H24 GPM continued to improve 5.2ppts YoY to 22.5% (vs 19.2%/21.5% in 2H23/1H24), thanks to optics turnaround and ED&PM/acoustics recovery.
　　2025 Outlook: spec upgrade in AI smartphones, AI glasses and edge AI devices, and penetration of auto acoustics/optics. For 2025, mgmt. guided double-digit revenue growth (~10-15% YoY). By segment: 1) ED&PM (haptics/ VC/hinges): EM growth of mid-to-high teens with GPM of above 30%, and PM growth of 18-20% YoY with GPM at high double-digit; 2) Optics (6P/WLG/ 32MP): mid-to-high teens with stable GPM at 25%+; 3) MEMS & sensors (AI/mic): 30-50% YoY with GPM at mid-to-high double-digit; 4) Acoustics (SLS/ combo): stable growth at low-to-mid single-digit with GPM at 30%+. In addition, mgmt. highlighted MEMS mic/sensor outlook in 2025, driven by high-end MEMS mic spec upgrade, AI glasses equipped with more sensors, auto MEMS mic penetration and accelerated growth for sensors in edge AI devices.
　　Expect for another strong year in 2025; Lift TP to HK$58.78. We lift our FY25-26E EPS estimates by 10-7% to reflect FY24 results, better GPM outlook and spec upgrade in edge AI devices in 2025-2026. Our new SOTP-based TP of HK$58.78 implies 25.2x FY25E P/E. The stock now trades at 22.8x/19.3x FY25/26E P/E, compared to 39%/18% YoY EPS growth. Maintain BUY.