AirTAC Earnings: Linear Guide Sales Below Expectation but Improvement Expected in 2024

Narrow-moat AirTAC’s 1590 cumulative nine-month net profit of TWD 5.27 billion was up 13% year on year and in line with our expectation. We slightly raise our fair value estimate to TWD 900 from TWD 870 after considering a better sales growth outlook in 2024-25. However, we think the shares remain overvalued currently, with a positive demand outlook largely priced in. In our view, the market could be disappointed with the slower-than-expected sales growth for its linear guide products. Our valuation for AirTAC implies a 2024 P/E ratio of about 21 times, versus its five-year historical trading range of around 14 times to 40 times.

There are a few highlights. First, while AirTAC should be able to achieve its double-digit year-on-year revenue growth guidance for 2023, its operating margin target was slightly lowered to around 30% from greater than 30%, partly dragged by higher labor costs. Second, revenue from linear guide products will be below the CNY 500 million target for 2023, but management expects stronger growth in 2024 given accelerating sales in recent months with the expansion into distributor channels. There will be more orders from the direct customers as well. Third, AirTAC believes operating margin should continue to rise in coming quarters on the back of improving efficiency and a higher utilization rate for the linear guide production.

Management thinks the firm can still enjoy double-digit revenue growth for the next 10 years, to be underpinned by the introduction of electric cylinders and two new automation components in the coming years. Overall, this is in line with our revenue CAGR forecast of 14.8% for 2022-27. For 2024, AirTAC expects stronger demand growth from the electronics industry as demand has been weak for the past few years. Meanwhile, demand from the energy and lighting segment should continue to see robust growth, supported by strong growth in the solar and LED industries.