AAC Technologies Centers on Profitability in 2023; HKD 23.5 Fair Value Estimate Maintained

We maintain our fair value estimate for AAC Technologies’ shares at HKD 23.5 after updating our earnings forecasts following the company’s fourth-quarter results release. We expect the profitability of the optics segment to improve in 2023 as management has realized that the aggressive expansion strategy is not feasible. We view AAC shares to be slightly undervalued as the company’s core competencies, such as acoustics and haptics, continue to generate durable cash flows. Meanwhile, smartphone demand recovering in the latter half of 2023 will spur haptics specification upgrades and alleviate competitive pressure on optics. We believe there is potential for an upside surprise in our forecasts and the stock price coming from sales volumes of automotive acoustics and incremental revenue from cross-selling optics and haptic systems to automakers as current visibility remains low.