AAC Tech announced 1Q21 positive profit alert, stating net profit of Rmb510-550mn (9.6-10.4x YoY). Mid-point is 45%/43% above our/consensus estimates, mainly due to low base in 1Q20 (-88% YoY) and better blended GPM, in our view. We also believe optics margin resumed QoQ improvement to 26% in 1Q21 (vs 21.3% in 4Q20). However, we think recent shortage in CIS/ SOC may drag smartphone demand in 2Q21E, and plastic lens pricing, CCM expansion and WLG ramp will cap AAC’s margin upside in FY21E. Our new FY21-23E EPS are 12-24% below consensus. Maintain Hold with new SOTP-based TP HK$48.0 given fair valuation at 21.8x/19.0x FY21/22E P/E.
- 1Q21 beat on low base and better GPM. AAC stated 1Q21E earnings would jump 9.6-10.4x YoY to RMB510-550mn (vs RMB53mn in 1Q20), due to normalized market demand post COVID-19. Mid-point of 1Q NP is 45/43% above our/consensus estimates, given better blended GPM and iPhone shipment, in our view. While we think optics GPM improved QoQ to 26.0% in 1Q21 from 21.3% in 4Q20, we see plastic lens pricing, expansion in lower-margin CCM and WLG ramp will limit optics GPM improvement in FY21E.
- Semi shortage and de-spec trend are near-term headwinds. While we think AAC would deliver solid plastic lens shipment of 70-80kk/m in 1Q21, we are cautious on recent semi shortage (esp. CIS, SoC) will slow down plastic lens demand in 2Q21E, as commented by Largan. In addition, ongoing de-spec trend and intense competition with Sunny/Largan will slow down lens ASP/GPM hike in FY21E. Expansion into lower-margin HCM and initial ramp of WLG lens in 1H21E will also be a margin drag in the near term.
- 2021 outlook: limited upgrade across all segments. We believe 2021 will remain a slow year for smartphone spec upgrade given semi cost hike and sluggish high-end demand. Mgmt. also guided 2021 CAPEX will be 10-15% lower vs 2020, due to investment reduction in optics/acoustics. Overall, we expect ASP/GPM pressure will remain across haptics, acoustics, casings and plastic lens in FY21E.
- Our FY21-23E EPS are 12-24% below consensus; Maintain HOLD. We revised up FY21-22E EPS by 5-13% for better optics margin and lower opex, but our FY21-23E EPS remain 12-24% below consensus for more conservative optics ASP/margin in FY22/23E. Our new SOTP-based TP is HK$48.0, implying 23.3x FY21E P/E. Trading at 21.8x/19.0 FY21/22E P/E, the stock is fairly valued in our view.
