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On Thursday, AAC Technologies (OTC:AACAY) Holdings Inc. (2018:HK) (OTC: AACAY) received an upgrade from Hold to Buy by Jefferies, with a new price target set at HK$36.00, raised from the previous HK$36.00.
The upgrade reflects the company's potential growth in artificial intelligence (AI) driven opportunities, particularly in components that enhance voice interaction and heat dissipation in smartphones.
The analyst at Jefferies highlighted AAC's capabilities in providing Micro-Electro-Mechanical Systems (MEMS) microphones with improved signal-to-noise ratio and performance, which are expected to be increasingly adopted by Original Equipment Manufacturers (OEMs) at two to three times the average selling price (ASP).
Additionally, the company's Vapor Chamber (VC) technology is anticipated to become a mainstream solution for mid to high-end models for heat dissipation. AAC, known as a leading VC vendor for the Android market, is also on its way to becoming a major supplier of VC for the upcoming iPhone 17 series.
AAC's status as a long-time producer of both microphones and VC, coupled with its role as a core supplier for Apple (NASDAQ:AAPL), positions it to benefit from the AI smartphone trend.
The firm is expected to gain a larger share in the total Bill of Materials (BOM) cost in the next one to three years. The analyst expressed a more optimistic view on Apple's growth momentum compared to the Android camp in light of this trend.
The company's Precision Smart Sensor (PSS) division is forecasted to generate approximately RMB 3 billion in revenue for the fiscal year 2024, indicating a year-over-year company-level revenue growth of around 30%. The PSS division is also set to become a key platform for AAC to expand its customer base overseas with existing consumer electronics products like cameras, haptics, and microphones.
While maintaining the revenue forecast largely unchanged, Jefferies raised its net profit forecast by 10% for the fiscal years 2024-2026 to account for a better-than-expected gross margin trend.
The new price target of HK$36.00 is based on a sum-of-the-parts valuation, applying a 17x price-to-earnings ratio for 2025 estimates for non-optics components and a 0.9x price-to-book ratio for optics, suggesting a 15% potential upside and a 19x price-to-earnings ratio for 2025 estimates.
InvestingPro Insights
As AAC Technologies Holdings Inc . (AACAY) garners attention with its upgraded status and potential growth in AI-driven components, current InvestingPro data and tips provide additional context for investors considering the stock. The company's aggressive share buyback strategy and significant returns over various periods highlight its strong market performance. Specifically, AACAY has seen a large price uptick over the last six months, with a 55.03% price total return, and an impressive 86.58% return over the past year. These metrics underscore the company's robust position in the market and potential for continued growth.
From a valuation standpoint, AACAY's P/E ratio stands at 45.1, with an adjusted P/E ratio for the last twelve months as of Q4 2023 at 58.15, reflecting a premium valuation that aligns with the company's growth prospects. Additionally, the company has a strong free cash flow yield, which is a positive indicator of financial health and efficiency. With a fair value estimation of $4.18 from InvestingPro, the stock is trading close to its intrinsic value, providing a balanced opportunity for investors.
For those looking to delve deeper into AACAY's financial health and future prospects, there are additional InvestingPro Tips available, offering insights into factors such as management's expectations, industry standing, and profitability predictions for the year. These tips can further guide investors in making informed decisions.
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