AAC’s 3Q20 net profit declined 32% YoY to RMB425mn, 25%/32% below our/consensus estimates, mainly due to 1) weaker revenue (-10% YoY) on iPhone launch delay, Huawei ban and de-spec trend, 2) lower GPM at 23.6% (vs our est./cons. of 27%/27.4%) across major segments, 3) slower optics ramp (40-50kk/m, vs 80-90kk/m guided) and weaker margin (24.6%, vs 35% guided). While mgmt. toned down optics GPM target to 30%/40% in 4Q20/2021E, we expect further downside on optics’ ASP/margin given slower 6P ramp, WLG launch delay and intense competition in mid/low-end optics. We trimmed our FY20-22E EPS by 11-21% and our FY20-22E EPS are 17-28% below consensus. Maintain Hold with new SOTP-based TP HK$43.2 given fair valuation at 24.7x FY21E P/E and slower-than-expected optics progress.
- 3Q20 another miss; GPM surprises on the downside. AAC’s 3Q20 net profit dropped 32% YoY, 25%/32% below our/consensus estimates, while revenue fell 10% YoY to RMB4.5bn due to iPhone launch delays and slower spec upgrade on acoustics/haptics/casings. GPM came in at 23.6%, well below our/consensus of 27%, given GPM pressure across acoustic/haptic/casing segments.
- Optics: weaker volume/margin growth; Lower ASP amid de-spec trend. Although 3Q20 optics shipment reached 40-50kk/m (vs 30-40kk/m in 2Q20) and GPM improved to 24.6% (vs 13.8% in 2Q20), the progress was still behind mgmt’s guidance of 80-90kk/m and 35% GPM. Given ongoing de-spec trend, Huawei impact (AAC’s No. 2 lens client) and intense competition in mid/low-end lens with Sunny/Largan/O-Film, we expect ASP/margin will remain under pressure in near term.
- 2021: better iPhone volume but lack of upgrade across all segments. While we think AAC will benefit from iPhone 12 cycle with stabilizing share allocation, we believe its acoustic/haptics (34% of FY20E sales) will continue to face ASP pressure for lack of upgrade, and its casing segment (Huawei mainly, 15% of sales) will decline given 2H20 Huawei impact. We estimate 4Q20E net profit to decline 25% YoY on revenue growth of 2% YoY.
- Our FY20/21E EPS are 26%/28% below consensus; Maintain HOLD. We trimmed FY20-22E EPS by 11-21% for weaker optics/casing due to Huawei impact and lower GPM on slower upgrade. Our SOTP-based TP is lowered to HK$43.2, implying 23.7x FY21E P/E. Upside risks include better optics margin and stronger iPhone shipment.
