AAC Technologies Holdings Inc
HKEX:2018
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AAC Technologies Holdings Inc
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Of AC Technology and Mr. Zhengmin, CEO of AAC Technologies.
Thanks for management's attendance. Today's meeting will be divided into 2 parts, starting with the presentation, and this will be followed by an open management Q&A session about the company's strategic development business updates. [Operator Instructions] Next let's take a look at the results of the third quarter and the previous 9 months of this year.
The group achieved a revenue of RMB 5.37 billion in the third quarter, up 26.5% year-on-year. The increase in revenue was mainly attributed to the peak sales season of overseas customers and increase in combined revenue contribution from Electromagnetic Drives and Precision Mechanics business. Gross profit margin was 19%, down 3.7 percentage points year-on-year and remained stable Q-on-Q.
Net profit of the third quarter was RMB 234 million, up 27.5% year-on-year. And to the overall situation in the first 9 months of 2022, as you can see, the group achieved a revenue of RMB 14.78 billion, up 15% year-on-year. Gross profit margin of 19%, down 7.3 percentage points and net profit of RMB 584 million, down 47.1% year-on-year. In the third quarter, the group continued its prudent [Foreign Language] [ heading ] in a solid cash position and the cash inflow was RMB 2.58 billion and main capital expenditure was RMB 1.44 billion.
Cash on book was RMB 5.76 billion. And net gearing ratio was 9.7%. And the group undertook proactive liability management. And we believe that sound financial position is essential to the sustainability of the group's growth.
We will now share with you the financial and operational performance of different business segments. First one is acoustics. In Q3, the group's acoustics business revenue was RMB 2.32 billion, up 5.6% year-on-year, driven by the peak season of overseas customers.
The group also proactively supports their business needs. And the GP margin remained relatively stable at 26.9%. And also the GP margin for the acoustic business is 27%, down 3.6 percentage points and this is mainly due to the year-on-year ASP decline of products of overseas customers in the first half and the impacts on cost side due to the pandemic.
And the group continued to work closely with overseas customers and it supports their expansion into emerging business fields by constantly enhancing product competitiveness and ensuring a stable product delivery. And the group launched its [ proprietary Combo and Opera coaxial ] solutions. And the group will continue to keep abreast of its customers' needs and launch new products and promote customers' product upgrades.
And in Q3, the group's optics business revenue was RMB 567 million, up 45.1% year-on-year. That's down 39% Q-on-Q. The weakened market demand and the resurgence of the pandemic in China affected the shipment volume and the utilization rate of the plastic lens and camera modules. And during the 9 months of 2022, the group's optics business revenue was RMB 2.42 billion, up 28.9% year-on-year, mainly due to the increased shipment volume of camera modules, the WLG hybrid lens business is progressing smoothly.
In Q3, our 1G5P and 1G6P hybrid lens products were under stable mass production and delivery. The group actively promotes the implementation of WLG hybrid lens in multiple projects of automotive ALPR devices, semiconductor production and testing and other industrial fields. Aand the 3P Pancake optic modules for VR devices has already obtained the certificate from our customers.
The next focus is on the Electromagnetic Drives and Precision Mechanics business segments. So given the peak season of the major customers of our -- this segment and also the synergy and new business are driven by the acquisition of Toyo Precision and the revenue reached RMB 2.05 billion, up 47.3% year-on-year and the gross profit margin was 21.5%. And for the previous 9 months, revenue for this combined segment amounted to RMB 4.99 billion and the gross profit margin was 20.9%, down 1.7 percentage points year-on-year.
And the shipment volume of x-axis haptics motors for Android customers continue to achieve high growth year-on-year and the Combo product of acoustics and haptics with master class acoustics technology and x-axis motor has multiple advantages in performance and also it's effectively reduced production costs.
With respect to Precision Mechanics business, leveraging years of manufacturing experience and in-depth cooperation with customers, the group has continued to expand its high-value business and optimize its product mix. And the synergy between Toyo Precision and existing metal casing business have been fully substantiated by the smooth expansion into notebook market.
Finally, let's focus on the sensors and the semiconductors business. And the sensors and semiconductor business recorded revenue of RMB 421 million, up by 66.1%. And also this semiconductor business and the sensor business revenue was RMB 900 million, up 16.9%, and the GP margin was 10.7% down 5.2 percentage points. And the factory facility in Malaysia commenced the production of high-performance MEMS microphones, which further strengthened the group's global production capacity.
In the future, the group will continue to expand into nonsmartphone markets, including IoT notebook, smart home alliances and automotive markets. After sharing the financial performance of each business segments, let's focus together on the company's third quarter operations and a new business expansion. In Q3 of 2022 in order to cope with the complex [ external ] in government, the group insisted on both internal and external improvement. On the one hand, a deeper cooperation with partners. On the other hand, it promoted lean management and continue to cultivate internal spend.
And we also upgrade our business. And also, we return -- our turnover rate has improved by strict inventory management. Through the above strategies, the company will continue to reduce cost and increase efficiency to evolve and achieve diversified business development. In the third quarter, while consolidating its position in the smartphone market, the group continued to explore strategic emerging markets.
In the optical field, it successfully developed the new 3P VR Pancake optical module and will complete the mass production line within the year. And also our business partnership with a number of customers relating to the Pancake optical module have already commenced and surround-view and the in-cabin lens products have already obtained a certification of leading automotive players in the market.
And with respect to the automotive acoustics market, the group -- for example, the group's automotive acoustics solutions has begun mass production and deliveries. And this will also expand our business. The above is the presentation of the third quarter results.
We now begin the Q&A session. [Operator Instructions] I would also like to remind you that the company is not in the position to comment on other companies and customers, so I hope you can focus more on our company's strategy and business development.
The first question is from the ICC Electronics.
Can you hear me?
Please go ahead.
I thank the management for your time. I have 2 questions. And the first question is about the inventory level and what's your outlook on the smartphone market and what's your management strategy? And the second question is the automotive products. So any update on your business? So what are this kind of business development in the future as well as the content per box?
First I would like to answer the inventory part, the inventory position and by the end of 2021, we -- our inventory is about [ 55.15 billion ]. And we also have RMB 200 million decrease. So in this weakening market demand, we strived our efforts on the inventory management and control as well as the CapEx control. So in the future, in the next few months, we will deepen the control and the management on inventory to improve our overall efficiency as well as the CapEx and also cash investments.
In terms of the outlook, we have the prudent attitude towards the market. The shipment volume will be similar to the volume of this year. Therefore, we will strictly control our inventory.
With respect to the smartphone market, you also know that the 2022 market is the most weakened market and we think there will be a 10 percentage point decline and in the Chinese market, there will be 2 digits decline. And we think next year, there will be single-digit growth. There won't be a big rebound. So we think the overall smartphone market will record a slight rebound. And for us, we will proactively promote our innovative products as well as the Precision Mechanics.
In terms of the automotive acoustics. So you can see this [ nurture us ], and for us we provided the full set of acoustic solutions to [ Aneta ] and was recognized by the market in a positive way. And this is also landmark for the mass production of AAC acoustics on the automotive field. So apart from the traditional automotive companies, we also obtained the collaborations from the NAVs and the new automakers.
So next year, the revenue will be boosted in this regard. And this results will be promising in terms of the revenue on our acoustics field.
Next question is from [ Tina Wong ].
I'm [ Tina ] from UBS. So we see that top line is very good for this year. And we also face, for example, the impact from -- the COVID impact in Zhengzhou. So what's your outlook on growth in Q4? So any support you were provided in the growth of Q4? In addition, I also want to ask [ back ] on the inventory of acoustics because you also see the weakened market demand. So we think there are being [indiscernible] off the inventories. So what's the inventory appreciation on acoustics? So what's your strategy in the destocking?
So I will answer the difference between Q3 and Q4. So based on the performance of Q3, we believe the performance of Q4 will be stable and there will be potential growth. Of course the supply chain was impacted by the COVID, but this is only in the minor changes. In terms of the shipment volume, I think there will be a single digit change for us, but for us this kind of impact is very limited. And the growth trend will be maintained.
In terms of the acoustics inventory -- in terms of the optics and inventory level, so we also see the situation in Q3. So actually -- and based on the Q2 situation, we undertook measures to manage our inventories. So going forward, this inventory management will continue. Of course, this kind of destocking speed will be in line with the demand of the market.
Our target is not changed. And our target for the next year is about 3 to 4 months. And we think we can achieve the target next year.
So you mentioned the target is in the end of this year. So -- and this target will be maintained to the next year, right?
Yes. And for the second half of the year, we can see the weakened demand in the Android market. So the destocking speed and the targets will be postponed to the next year.
Okay. Understood. So in terms of the optics at product mix. For example, in Q3 there was a decline and the GP will be delivered. So how do you see the product mix of this year?
Actually, the product mix, we also include the 5P, and the 7P will be shipped in the end of this year. And 6P is about 10%, will be maintained at this level. And this is also in line with the configuration requirements of our customers. We also have the G plus P. We have this in 1G plus P before we deliver the 7P. We have already launched and delivered 1G6P and those products are applied in Xiaomi products, and you can experience those products in Xiaomi stores. And from my own perspective, the customer experience is good.
And next question is from Citi. Mr. Liang. Mr. Liang, we cannot hear you from.
We invite next investor to proceed his question first. Okay, Andy.
My question is about the acoustics products, categories and the relevant market share and it's ranking. So I would like to know more about the acoustics products position in the market.
With respect to acoustics, we have the overseas customers and the domestic customers, and we are the top players in the domestic market. And in the overseas market, and the situation is similar. According to the volatilities in the market, we believe we are still the best partner to our customers no matter the use of our products in either the IoT or smart phone products.
So in terms of the delivery and the cooperation relationship, and we are still maintaining a very best level with our customers.
So any segments, the market share will further improve and what's the core competitive edge in the acoustics?
We think there are some areas of acoustics will be improved. For example, [ we have phones ] and with and with the upgrade of Iot, we are actively helping our customers to deliver high-quality products. It includes the -- is on the high [ page ] products and in addition, we also see the adjustments of the smartphone market.
We will also launch the new products [ tallying ] with this change. And for example, we have the combo products. So we use the one product to realize the x-axis motor and the [ AMOLED Plus 1 ] speaker. And this will help us to improve -- to increase our spend and also help our customers to increase their product performance. Thank you.
And these answers that answers question. Mr. Liang, we still cannot hear you.
And we also received the questions from the chat box and the question is about the [ pledges ] and the new loans of the company in Q3, so whether you will use more RMB to replace the U.S. debt in the future?
So actually, in Q3, you can see this a tender. This is an overall liability and active management. We replaced the U.S. dollar debt with the low interest RMB that -- because there are preferential policies to support the high-tech companies in the Chinese market and also the term is well matched and at present, we are focusing on the 2 years or longer than 2 years loans and the interest rate is also attractive. And this kind of liabilities also provide liquidity to the company in this volatile market.
So it's a very good message and in the future, we also see the maturity of our debt and the other liability management and we will also consider the replacement of any debt in the future, if necessary.
Okay. Next is from Huatai, Mr. Hui.
So my question is about utilization rate of our acoustics. And if there are big orders, whether these big orders can be digested by our production.
So our utilization efficiency is high according to the different products and the requirements of our customers. Of course, we will have some minor change in the product mix and new products launched. So in terms of the acoustics, we will use more smart, more flexible and smart production mode to meet the needs of our customers.
I have a follow-up question. In Q3 we also see a very intensified competition in acoustics and the GP margin is negative. So what's the reason behind -- and what's the breakdown of the GP margin? So if we want to achieve a positive GP margin, what kind of measures will we take?
Okay. I will take this question. Thank you for your question. In Q3 we see this GP margin decline in the optics and the GP margin is negative 14%. And the plastic lens is negative 2%. And the reasons behind include the production pipeline declined and the utilization rate -- job increased the cost sharply.
In addition, the 5P lens, the competition in the market was very fierce. So the ASP has reported double digit decline and this also creates a negative impact on our GP margin. Moreover, modules competition is also fierce. It triggered the challenge in our module shipping margin. And the GP margin on this regard declined by 5% because it's related to the chips.
So in the future, if we want to improve our GP margin on optics, what kind of measures you would take?
First of all, we will upgrade our lens modules. So this will create positive influence on our ASP because our ASP was declined for the past 2 years. In addition, we will optimize our efficiency and to reduce the production cost. Thirdly, we will increase and improve our utilization rate in the production. And we think in the future, in next year, there will be double-digit growth.
And this growth is mainly due to the industrial recovery and the structural improvement as well as our overseas customers, especially Korean customers increase.
The next...
Microphone chip margin has declined in Q3. So what's the reason of this decline? And what's the outlook of the GP margin.
And from Q3, we have big projects on our chips and the -- [ in chip ] market, and we are promoting AAC self-produced chips and the GP margin of these chips is above 20%. But the chips are from [ inventory ] customized chips and the customized configurations are required by the customers. And this will impact our GP margin in Q3 in order to cope with these difficulties. We will proactively promote our self-produced chips in the market and we will also adopt a more flexible manufacturing method to balance the GP margins and increase from the ships of the inventory.
So we're thinking in the future next year, the GP margin will be improved.
Kylie from Daiwa.
Thank you for your time. And first, I would like to ask about this Precision Mechanics and the growth is very promising. So was the growth in terms of the smart phone segment, so any difference between the GP margin in different areas on this -- in this segment?
So many investors observed there's a strong momentum of the growth in the Precision Mechanics. This is related to the synergy of the acquisition of Toyo Precision. And this year, the Android smartphone market has weakened, but the affordable smartphones from some big customers are increasing. And the affordable smartphones momentum is very strong this year, and it has also boosted our growth in this regard.
Apart from this reason, in Q4 and next year, our outlook on Precision Mechanics are also very promising.
Sorry, yes, we cannot hear you and your voice is clear now.
Okay. So my next question is about the acoustics and here we have our components of acoustics. So have you considered the assembly of the MEMS of acoustics?
We have already built a very good relationship with our customers. So we will continue our business on components. And next year, we will also launch the new products and the technologies and to enhance our leading positions in this market and help our customers to compete with -- compete in the industries.
With respect to modules and assembly business, we have an open -- [ mic set ]. We also have some communication with potential customers, but those are in the preliminary phases. So if we have further improvements and we will communicate and share the information with you in the future.
Okay. And next question is about the automotive area. So what percentage will the automotive contribute to the company next year?
Thank you for your questions. The automotive is different from consumer electronics in terms of its cycle. The mass production is longer time. So the revenue contribution will be limited in the next 1 or 2 years. Of course, we think the revenue of automotive in the future won't be less than the revenue of consumer electronics. So this is my answer.
And the first question from [ Zip Big ] Electronics.
And the first question is in how do you destock the inventory? And the second question is about the precision, it's Toyo Precision. And what's the current business structure of Toyo Precision?
So for the first question, it's about the optics lens. And our strategy will be dependent on the demand and the supply. And for the strategy for the last year and the first half of the year, those strategies were very aggressive. At present, the market is weakened and [ wains ]. We will adopt the measures to guarantee our profits and the -- our stable cash flow.
So in the first half of the year, we managed our inventory. So we have recorded a positive operational in cash flow. So this year, the cash flow will be continued to improve.
Sorry, I forgot the second question. The second question is about Toyo Precision. I will repeat the question. Your question is about the business structure of Toyo Precision and its subsequent business plan and how to position Toyo Precision with existing manufacturers. And the many investors know that the Toyo Precision is sold overseas and Western big customers for a long time. At present, and the business and are focused on the notebooks.
So after the acquisition of Toyo Precision, synergies were created and to -- in promoting the new products and the market share. So we have a strong confidence in Toyo Precision in it's future development because it's growth is very decent.
The technology of the Toyo Precision as well as customer relationships, their competitive edge. So we will continue our market -- continue to expand our market share in notebooks. And next year, we also see some products of next year smoothly promoted.
So we think this will help us to obtain a double-digit growth in this regard.
Next questions are from our Chatbox. So some investors wanted to know the CapEx outlook and the breakdown on each segment.
I will take the question. So the CapEx from January to September is about RMB 1.4 billion. Actually, there was a big jump compared with last year. And the management also mentioned the inventory control and the cash flow control for the overall -- the CapEx this year, will decline by 40% and from RMB 3.5 billion to about RMB 2 billion.
And next year, we will continue to optimize the CapEx. So it will decrease by 15% to 20%. And in terms of the acoustics [ modules ], the CapEx is stable. And on optics, the CapEx is decreased because the optics scale has already achieved a certain level, and we completed the early stage of production.
And many investors pay more attention to the Precision Mechanics, and we also have some confirmed projects. So some CapEx will be put into this area. And this is also in line with our overall strategy and dependent on the demand of our customers.
Next question is from Tony Zhang.
My first question is about the smart motor. So whether this smart motor and replace this physical [ plus ] functions. So any obstacles in this replacement or any need and demand from the customers?
In terms of the technology and the x-axis motor and the development with our customers are always continued, so we think in the future, x-axis motor will fulfill some functions in the future.
But, of course, a specific structure will be dependent on the requirements of the customers. Actually, the major barrier or obstacles are not from the technology, are from the acceptance of the customers and their requirements. We are the best partner to our customers in terms of the technology.
And for my second question, actually is about the market outlook of Android.
So actually, for example, for the same technology, there will be price -- some price cuts in the domestic market, in Android market, that there won't be a big change.
And next question is about in optics' latest IPO progress.
So we are in the progress with [indiscernible] and [ YOSO ] exchange. And we are waiting for the second phase of the year communication. At present, we don't have the detailed information to announce.
Okay. Next question is from Nomura, Anne Lee.
My question is related to optics. So would you please provide us information on the product mix of the optics? In the hybrid lens and molding glass what's the shipment volume? And next year, [ Mr. Don ] mentioned double-digit growth. So what's the breakdown in terms of plans and modules? And what's the growth rate in this first half of next year and the second half of next year?
So you asked about lens, so we won't have any big change in the product mix. Our focus is still on the 4/5P and 6P is accounted for about 10%. And in the second half of the year, we increased 1G5P and 1G6P, and the shipment volume target of this year is RMB 5 billion. So by the end of this year, we can see the target is hard to achieve because of the weakened market demand and the pandemic impact and the shipment volume of this year is about RMB 3 million.
The mass production commenced in Q2 and in Q3, the production was ramped up in Chongqing factory, so the chips shipment volume has increased. So we also have our new products in our pipeline. We are closely negotiating and communicating with our customers. So we have our transparent concept and the 1G5P is in the progress.
And next year, we will increase the WLG market share and the high-end lens market share. In addition, we will also increase our price to performance products in the market. In the past we will also -- in the past, some lens -- hybrid lens were very expensive. And in the future, those high-quality products will further penetrate to the mid- and low-end markets.
In addition, customers pay more attention to the brand or co-brand collaboration, for example, Leica and other brands. And of course, and this will help us to improve the hybrid lens and high-quality lens. And in terms of the vertical integration, our OS commenced its mass production. And we estimate the OS motor mass production will be commenced in December. So next year, the modules and the products on OS will be largely improved.
So modules will be developed into higher end and we also see the potential and opportunities in the OS market. And this year, we have one [ unjoined ] customer. And in the second half of the year, we obtained the 3 [ unjoined ] customers. It helps us to increase our market share.
And we will welcome the last question.
We are seeing the gross margin has been declining for quite a while. When can we see an improvement in the margins? [Foreign Language]
Ms. Guo, would you please answer the question? And then I will make some supplements.
Okay. from our previous communication, and some questions about the GP margin level of the recent years, so actually we don't have a particular GP margin level and the GP margin reflected our overall products and from acoustics to motor to optics to the Precision Mechanics, our products are more diversified. Optics, as mentioned by the management, started from [ MEMS ] and developed to modules.
So actually, the GP margin after modules and the Precision Mechanics is similar -- is different from the acoustics. So that's the main reason for this change in the GP margin based on our portfolio -- product portfolio. In the future, based on the industrial cycle and the customer demand and the need, certain -- [ Ms. Jansen and Jack ] also mentioned that based on the demand of our customers, we upgrade our product of motor and the acoustics and optics, for example, this hybrid lens.
And we are proactively promoting the high GP margin products, and this strategy is confirmed. And the top line of the company. You can see in this volatile macroeconomic environment, our top line is going up largely and next year, there are still certain -- there are still some uncertainties and the management still have the confidence in the next year's growth and the customer service.
Yes, agree. I think the overall smartphone market is challenging and next year, and this kind of a situation will continue. In a few states, we will help our customers in this competition. And we think the GP margin of acoustics will be stable. And in terms of Precision Mechanics, and with the Toyo Precision and other products and the GP margin will be improved next year.
And from the sensors and the microphones and the growth will also be positive because new customers and new intakes are introduced so we think the sensors, the GP margin of sensors has great potential to grow at the same time, we still have to pay attention to the macro environment.
We will try our best to arise more opportunities to grow and to improve our GP margin.
Thank you management answer. I'm sorry, our time is constrained. AAC Technologies 2022 3rd quarter results conference has concluded here. I you have or questions, please feel free to contact the company's IR team at any time. Thank you for your attention to AAC Technologies. Thank you. See you.