AAC Technologies
　　Acoustic player evolves into an all-around manufacturing hub
　　AAC delivered strong 2H24 with revenue up 44% YoY and GPM up 3.3ppts. Net income reached RMB1.26bn, a record high in the past four years. Mgmt. projects double-digit revenue growth in 2025, supported by automotive electrification, advanced microphone and high-end VC cooling for AI smartphone and optics margin recovery. We believe 2025 will be an exciting year for AAC as various key projects it has engaged for a while finally bear fruit, together with favourable industry tailwinds such as national subsidy, AI, consumer electronic premiumisation, XR and robotics development. In addition, we believe WLG’s yield rate and capacity improvement will open up real market opportunities to compete with GMO glass in future hybrid lens projects. Maintain BUY with revised target price of HK64.4 (was HK47.6) based on 27x 2025E EPS.
　　Key Factors for Rating
　　2H24 results beat: Revenue surged 44% YoY to RMB16bn, surpassing BOCIe and consensus by 17% and 6% respectively. GPM expanded 3.3ppts YoY to 22.5%. Net income grew 114% YoY to RMB1,260m, exceeding BOCIe and consensus by 22% and 8% respectively. The strong performance stems primarily from: 1) PSS consolidation in automotive acoustics achieving 25% GPM, 2) Android recovery and spec upgrades, and 3) strong optics segment profitability improvement.
　　Bullish 2025 guidance: The mgmt. guided 1) mid-high double-digit revenue growth in optics and EMD&PM segments, with stable single-digit growth in acoustics, leading to double-digit overall revenue growth; 2) further GPM expansion from scale and premiumisation; 3) stable Opex ratio and Capex (RMB2.0-2.3bn).
　　Automotive: Revenue reached RMB3.52bn with AAC’s existing auto business revenue increasing by more than 600% YoY in 2024. The company commands 15-20% global market share in automotive microphones, targeting 30% in the near term. In optics, mass production for key US clients will commence from 3Q25. Mgmt. expects automotive acoustic revenue to surpass consumer electronics acoustics within two years.
　　Robotics: The company is actively developing dexterous hands, joint motors, and actuators for a key US client’s humanoid project which may takes time to materialise. In the near term, AAC could generate revenues from speaker, microphone, sensors and motors for micro co-robots.
　　Consumer electronics: AAC leads in high-end VC for premier clients, projecting strong double-digit YoY revenue growth over 2025-28 as heat dissipation demand increases in AI era. In XR, AAC collaborates with leading OEMs in display and acoustics. We expect AAC to benefit meaningfully from AI, including high-end VC, high Db microphone, motors, and other components.
　　Optics: Mgmt. reported strong yield rate breakthrough of WLG (70-80%+), anticipating over 10m shipment in 2025 driven by new adoption in main cameras and periscope prism lens by key domestic OEMs thanks to cost and spec advantages of WLG. After years of development, we start to believe that WLG now has become a competitive glass lens technology to GMO.
　　Key Risks for Rating
　　1) Slower-than-expected smartphone upgrade; 2) slower-than-expected optics recovery; 3) macro impact on tech demand; and 4) lawsuit with industry peers.
　　Valuation
　　We lift 2025/26E EPS by 20%/30% to factor in smartphone market recovery and premiumisation together with AAC’s multiple recent design wins. We use 27x 2025E EPS to value AAC, supported by a 30% EPS CAGR over 2024-27E. Maintain BUY with new TP HK$64.4.