We expect AAC to deliver strong 1H25 results YoY due to: a) spec upgrade and volume growth of high-end domestic Android; b) demand pull-in of a major US customer upon tariff uncertainty; c) decent progress of the company's product diversification in copper VC cooling, WLG lens, side buttons, automotive acoustics, and XR. We believe as the tariff uncertainty clears up with special tariff exemptions for semiconductor and smartphone, market confidence in the consumer electronics sector, including AAC, will continue to recover. Additionally, since AAC overseas business accounts for a higher proportion than peers, we expect the impact of the recent suspension of domestic subsidies to be relatively small for the company. We expect the recovery to sustain in 2H25, driven by more mass production of new products from major customers, and the earlier release of new high-end Android models than last year. However, we slightly lower EPS estimate due to automotive customers’ demand slowdown. Our new target price is HK$62.6, based on a 22x 2026E P/E. Maintain BUY.
　　Key Factors for Rating
　　Acoustic: we expect overall acoustic revenue to grow at single digit with stable +30% GPM, in line with guidance as AAC’s key smartphone customers had solid spec upgrade and shipment growth in 1H25.
　　Optics: we believe AAC’s plastic lens and CCM business has benefited from competitors exiting low-end segment in 1H25. Meanwhile, AAC’s WLG market share gain is well on track to achieve over 10m shipment in 2025 driven by the adoption in high-end Android models such as Pura/Mate80, Mi16 and vivo X200 Ultra, per our check. However, we believe AAC’s automotive lens progress may slightly delay due to potential customers’ recent demand slowdown.
　　EM: AAC keeps its leading position in haptics. Per AAC, Samsung Galaxy S25 Edge adopts AAC’s ultrathin acoustics and haptics solution. We expect AAC’s ultra-thin series new solutions will enjoy first-mover advantage in the ongoing smartphone thin and slim trend for both Android and iPhone. For the side- button business, we expect volume production to commence in 3Q25.
　　PM: We continue to see AAC’s design win and share gain in metal casing for smartphone and notebook. Copper VC cooling part for a key US client will enter mass production in 3Q25 and we believe in higher VC cooling revenues contribution from 2026, per our check.
　　Automotive/PSS: we expect AAC’s PSS business to only grow 5% YoY in 2025 as we see downside risk given one of PSS’ key customers has obvious order slowdown issue around the world.
　　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 slightly lower 2025/26/27E EPS by 11%/7%/5% to factor in automotive lens and acoustic slowdown of a key US client, tariff and national subsidy pause impact. We roll forward our valuation basis to 22x 2026E EPS, supported by a 29% EPS CAGR over 2024-27E. Maintain BUY with new TP HK$62.6.