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Investing.com -- Moody’s Ratings has affirmed AAC Technologies Holdings Inc (OTC:AACAY).’s Baa3 issuer and senior unsecured ratings while revising the outlook to positive from stable.
The positive outlook reflects AAC Technologies’ improved profitability, primarily driven by margin increases in its optics segment, along with ongoing business diversification in product offerings, customers, and production sites, according to Roy Zhang, Moody’s Ratings Vice President and Senior Analyst.
"The rating affirmation reflects the company’s leading positions in acoustics and haptics components with a long operating history, and a track record of maintaining a solid capital structure and excellent liquidity," Zhang added.
The Baa3 rating is constrained by demand fluctuations for its products, end-market and customer concentration risks, and execution risks associated with business expansion.
AAC Technologies has improved its business diversification structurally by deriving synergies from the Premium Sounds Solutions acquisition completed in February 2024. This diversification includes expanded product offerings, increased exposure to markets such as automobile, and production site expansion.
The company has established itself as a key supplier in the optics segment, with the segment’s gross margin turning positive to around 6.5% by year-end 2024. Moody’s anticipates the optics segment will become a sustained profit contributor in the next 12-18 months.
While potential impact from US tariff increases on some customers remains uncertain, Moody’s believes direct effects are limited due to minimal direct shipments to the US market.
Moody’s expects AAC Technologies’ revenue to grow by approximately 10% annually in the next 12-18 months, supported by a strong product portfolio and rising client penetration. The company’s EBITDA margin is projected to remain around 19% over the same period.
The rating agency forecasts that AAC Technologies will reduce its adjusted debt to EBITDA ratio to around 2.0x by the end of 2025, driven by higher EBITDA and stable debt levels.
The company’s liquidity is considered excellent, with cash holdings of RMB7.5 billion as of December 31, 2024, which along with projected operating cash flow, should cover short-term debt, contingent settlement provision, capital expenditure, the second payment for the PSS acquisition, and dividend payments.
Upward rating pressure could emerge if the company expands revenue and improves market position in emerging product segments, further diversifies its product and customer exposure, sustains profitability, improves free cash flow generation, and continues prudent financial management.
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