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HONG KONG, March 28, 2024 /PRNewswire/ -- On March 21, AAC Technologies (2018.HK) held its 2023 Annual Results Press Conference in Hong Kong.
In 2023, the Group recorded a revenue of RMB20.42 billion, with a gross profit margin of 16.9% and a net profit of RMB0.74 billion. The revenue for the second half of 2023 ("2H 2023") was RMB11.20 billion, with a gross profit margin of 19.2% and a net profit of RMB590 million, up 25.2% year-on year ("YoY").
Ms. Guo Dan, CFO of AAC Technologies, stated at the conference that the demand for mid-to-high-end smartphones led a recovery trend in 2H 2023, leading to a turning point in AAC Technologies' performance. It is expected that the business performance in areas such as acoustics, optics, and precision mechanics will continue to improve in 2024. The overall revenue is expected to increase by 10% to 15% in 2024, and the comprehensive gross profit margin will also recover to over 20%.
Furthermore, the Group's automotive business is set to make significant progress. According to Ms. Guo, after the completion of the first delivery in February, the acquired Premium Sound Solutions ("PSS") will begin to implement financial consolidation. It is expected that the automotive business will contribute RMB3 to 3.5 billion in revenue, achieving a net profit of around RMB0.2 billion. PSS covers the majority of high-end European and American automotive brands and leads in both customer relations and product innovation. After integration, PSS will lead the development of the entire automotive business, while AAC will focus more on the investment and development of its own resources such as algorithms, power amplifiers, and collaborate with them. The acquisition of PSS will also facilitate the faster introduction of other products into the automotive field in the future and the global layout of the Company's overall business.
The Expected Revenue will Increase 10%-15% in 2024, with a Comprehensive Gross Margin of over 20%
Ms. Guo mentioned that the outlook for the global smartphone market in 2024 remains cautious, but the trend of specification upgrades in the mid-to-high-end smartphone market are observed. "This will lead to better growth in our revenue top line, especially for our ASP, and will provide good support for our profit margin as well."
According to Ms. Guo, with specification upgrades and the introduction of innovative products in the field of acoustics, as well as rapid developments in areas such as hinges and heat dissipation business, both the acoustics and electromagnetic drives businesses are expected to benefit. The acoustic division is expected to achieve a gross margin level of 25% to 30% in 2024; the electromagnetic drives and precision mechanics divisions are expected to operate within a gross margin range of 20-25%.
In addition, the Group's optical business is expected to stabilize and improve in 2024. In terms of plastic lenses, the optical industry has returned to a relatively healthy competitive situation, with an increasing proportion of shipments of AAC Technologies' 5P, 6P, and higher-end products. In the field of WLG hybrid lenses, production yields are steadily increasing. Ms. Guo stated, "Our cumulative shipments of WLG lenses are close to 8 million units, of which 3 million are 1G6P. Whether in optical performance or technical difficulty, they are comparable to 7P plastic lenses, demonstrating our technological prowess."
"With positive outlooks in different divisions, the Group's overall revenue top line is expected to increase by 10% to 15% in 2024, and the comprehensive gross margin will also return to a healthy level of over 20%." Ms. Guo further emphasized that compared to a few years ago, this comprehensive gross margin improvement is a result of a more diversified product mix and a more robust product portfolio, which better supports the Company's long-term and steady performance development.
Precision Mechanics Sector Expected to Continue High-speed Growth
The financial report shows that in 2023, the revenue of smartphone metal casing grew by 34.3% YoY, with both the shipment volume and ASP of mental casing showing double-digit growth, and this segment has maintained a leading market share in high-end and flagship models of major customers. In 2H 2023, metal hinges have been mass-produced for the first time and delivered nearly 700,000 units for the entire year. Additionally, the revenue from heat dissipation products increased by more than 100% YoY.
Ms. Guo noted that the Company's precision mechanics business has shown a positive development trend in the past two years, with annual growth of over RMB1 billion, much of which comes from the rapid growth of the metal casing business. After the acquisition of Dongyang Precision Machinery (Kunshan), the Company entered the North American customer notebook business, which has also made a stable contribution to the business in recent years.
Furthermore, the hinge products used in foldable devices have become a new growth engine for AAC Technologies. According to Ms. Guo, in 2023, revenues from hinge products generated over RMB0.3 billion in incremental revenue. Revenue from heat dissipation products also doubled YoY in 2023, benefiting from the increasing demands for more advanced specifications in heat dissipation components due to continuous upgrades in smartphone chip specifications.
Ms. Guo revealed that AAC Technologies is expected to continue high-speed growth in the hinges and heat dissipation business this year, and the entire division of precision mechanics will see a broader performance improvement in the future.
PSS will Contribute RMB3-3.5 Billion in Revenue to Automotive Business
It has been learned that in recent years, AAC Technologies has been actively developing its second growth curve and entered the automotive field in 2021.
At the press conference, which took place in February, AAC Technologies completed the acquisition of an 80% stake in Premium Sound Solutions (PSS), a globally renowned supplier of automotive acoustics products. Ms. Guo stated that by combining PSS's rich product portfolio, global manufacturing operations, as well as its solid existing supply chain relationships with global OEM manufacturers, AAC Technologies is set to provide a broad set of innovative and high-quality audio system solutions to accelerate its penetration into the global automotive industry.
"We expect PSS to contribute RMB3 to 3.5 billion in revenue this year, achieving around RMB2 billion in net profit," Ms. Guo said.
Regarding further expansion in the automotive sector, the Group's management mentioned that there are many similarities between the automotive and smartphone businesses. The Company will not only focus on acoustics but will also venture into optics and other areas, planning for a more substantial development layout.
Additionally, in the AR/VR business, the Group's XR acoustic solutions have been delivered to numerous top global XR companies, and the motor-related business is also progressing well with customers.
Free Cash Flow was RMB3.81 Billion, Hitting a Historical Record High since Listing
As of December 31, 2023, the Group's operating cash flow reached a record five-year high of RMB4.63 billion, up 6.0% YoY. Capital expenditures amounted to RMB1.38 billion, down 25.4% YoY, and the free cash flow was RMB3.81 billion, hitting a historical record high since the Group's listing. Cash on book amounted to RMB6.82 billion, with a net gearing ratio of 5.1%. The inventory turnover days decreased from 109 days to 80 days.
"We believe that a sound financial position can better support the company's strategic layout in new business areas in the long run and be very helpful in supporting the acquisition of PSS," Ms. Guo revealed. After the acquisitions, the Group's leverage ratio did not increase significantly. Half of the acquisitions were supported by the Company's own cash flow, showing a very healthy financial condition.
Ms. Guo emphasized that AAC Technologies will continue to be prudent in financial management and stringently manage capital expenditure and operational expenses. A sound financial position is crucial to the Group's sustainable development and provides a solid foundation for the Group's future innovation.
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