AAC Technologies Holdings Inc. (2018) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to AAC Technologies 2021 Q4 Financial Results Conference Call. Today's presentation will be conducted in English, and the Q&A section will be English and [Foreign Language]. We have simultaneous interpretation in the interpretation channel. [Operator Instructions] Now I would like to leave the floor to our host today, Investor Relations Director of AAC, Ms. Huang [indiscernible]. Welcome.

Sorry, can you hear me now?

Yes, we can hear you. Yes. Please, go ahead Ms. Huang.

Sorry about the disruption. Okay. Good afternoon. Welcome to AAC Technologies Q4 2021 Results Conference Call. I'm Maggie Huang, Investor Relations Director of AAC. I'm glad to have our EVP and CIO, Mr. Kelvin Pan; CFO, Ms. Dan Guo; and CEO of our Optics Business Group, Mr. Jack Duan, joining us today. Before we start, we would like to remind you that copies of our result announcement and the presentation are both available on our website. We would also like to draw your attention to the disclaimer on the last page of this presentation. Some information we discuss today may contain forward-looking statements. Then I'm going to present our results for the quarter and the full year 2021. In 2021, the group's revenue was about RMB 17.67 billion, up 3.1% year-on-year. Gross profit margin was 24.7%. Net profit was RMB 1.32 billion, down 12.6% year-on-year. For Q4 2021, revenue was RMB 4.81 billion, up 0.6% year-on-year. Gross profit margin was 20.5%, down 7.6 percentage points year-on-year. Net profit for Q4 2021 was RMB 212 million, down 72% year-on-year. The company's performance was affected to a certain extent by continuous operational headwinds, such as supply chain disruption due to the ongoing pandemic, the increase in operational cost in China and a weaker demand due to chip shortage. The overall gross profit margin was also adversely affected by fierce competition in domestic and overseas markets. And the decrease of net profit was attributed to the lack of a similar exceptional exchange gain and a reduction in government subsidies. Here are some highlights on our business segments in Q4. For acoustic business, strong shipment growth from overseas customers during the peak season helped to offset weaker demand from Android customer base. In terms of the acoustic solution for automotive market, the group is actively engaging with domestic new energy vehicles OEMs, and we already have projects under development. For Optics business, the total shipment for plastic lens and camera module increased Q-on-Q. WLG hybrid lens projects are progressing smoothly. The group is focusing on 1G6P high-end hybrid lens projects, and it will be with mass production and delivery in the second half 2022. For Electromagnetic Drives and Precision Mechanics business, the total shipment volume of x-axis haptic motors for Android customers reached 67 million, increased significantly year-on-year. It is expected that the shipment volume will continue to have multiple growth this year. Leveraging our Toyo Precision's rich experience in overseas customers, the group will continue to expand customer base to improve revenue and overall profitability of this business segment. Okay, regarding the cash position and the financial position. During the reporting period, operating cash inflows were RMB 4.54 billion, and the capital expenditures amounted to RMB 3.55 billion as of 31 December 2021. Net gearing ratio was 8.9%, and cash on book was RMB 6.05 billion. The group remains prudent in financial management and stringently manages CapEx and R&D expenses to conduct active liquidity management. While maintaining our prudent financial policy, the group will actively look for new development opportunities to lay a solid foundation for long-term development. In addition to automotive market, we have also strengthened our strategic footprint in the growing wearable markets. Besides the investment in Ibeo, SWIR and acquisition of Toyo Precision. Recently, the company and Dispelix, the leader in see-through waveguide displays for AR/VR jointly announced a strategic partnership. We will combine Dispelix's unique see-through optical waveguide technology with our expertise in large-scale efficient operating expenses and our highly complex wafer-level manufacturing technology to provide the highest quality waveguide displays for customers globally. Now we will share more about our development in the automotive market. With respect to automotive acoustics, the group has been working with a leading Chinese electric vehicles OEM to codevelop products with mass production, which is expected to commence at the end of 2022. Meanwhile, the group has also obtained an acoustics software and tuning project for a high-end automotive OEM and the products are currently under development. With respect to automotive lens and LiDAR sensor markets, the group's product portfolio has covered front view, surround view, OMS and DMS vehicle lens. The development of more premium products are also in good progress. In the future, the group will integrate acoustics, optics and haptics products to help customers create intelligent cockpit with multidimensional experiences. Next, let's move to the analysis of each business segment. For Optics business, in 2021, the group's optics business revenue was RMB 2.39 billion, up 46.2% year-on-year. Gross profit margin was 17.2%, down 1.6 percentage points year-on-year. For Q4 2021, revenue from the optics business was RMB 530 million, down 4.2% year-on-year. Gross profit margin was minus 2.1%, down 23.5 percentage points year-on-year. On a Q-on-Q basis, revenue increased by 31.3% and gross profit margin dropped by 16.9 percentage points. It was primarily due to onetime adjustments and industry ASP decline of the plastic lens. In Q4, the shipment volume of plastic lens increased by 52.7% Q-o-Q, and the shipment volume of 6P plastic lens accounted for 12% of the total shipment. Due to the decline in ASP as well as the impact from onetime adjustments, the gross profit margin of plastic lens decreased by 30.8 percentage points Q-on-Q to minus 6.1% in Q4. As for the camera module business in Q4, the average monthly module shipment was around 6 million units, representing a Q-on-Q increase of 13.9%. It is expected that the shipment volume will continue to increase in Q1 2022. There will be more mid- to high-end products to be manufactured and delivered this year. The WLG hybrid lens business is progressing as scheduled. The group is focusing on 1G6P high-end hybrid lens projects, which will be mass produced and delivered in the second half of 2022. Regarding the Acoustics business, in 2021, the group's Acoustics business revenue was RMB 8.58 billion, up 13.5% year-on-year. Gross profit margin was 29.7%, up 1.8 percentage points year-on-year. For Q4 2021, the Acoustics business revenue was RMB 2.24 billion, up 8.4% year-on-year. Strong shipment growth from overseas customers during the peak season helped to offset weaker demand from Android customer base. The gross profit margin was 26.8%, down 5 percentage points year-on-year, mainly from ASP pressure. In Q4, the Acoustics revenue was up 2% Q-on-Q, and the gross profit margin was up 0.5 percentage point Q-on-Q. The revenue and gross profit margin of Android Acoustics products will increase steadily in 2022, as we are seeing stereo design gradually penetrates from flagship smartphone models to mid- to low-end models. And the increased shipment of standardized small cavity speaker module will further improve the profitability of Android Acoustics products. In terms of the total acoustic solution products, we have successfully obtained the overall acoustic solution project from a leading domestic new energy vehicle OEM. In addition, the group is actively engaging customers regarding partial application of our speaker module and has reached agreement with one of the customers to provide speaker module for their car headrests. The project is planned to undergo mass production and to be delivered in first quarter 2023. For the EMD and PM business in 2021, revenue from this combined segment amounted to RMB 5.64 billion, down 17.7% year-on-year. Gross profit margin was 21.6%, down 2.1 percentage points year-on-year. For Q4 2021, given the reduction in ASP of haptics sold to major customers and [indiscernible] production of stepper motors, revenue from this combined segment was RMB 1.8 billion, down 6.2% year-on-year. Gross profit margin was 19.8%, down 8 percentage points year-on-year. Compared to Q3, due to the increased shipment for precision mechanics and haptic motors and the consolidation of Toyo Precision, revenue grew by 28.8% Q-on-Q, while gross profit margin decreased by 0.5 percentage point Q-on-Q. In 2021, the total shipment volume of x-axis haptic motors for Android customers reached 67 million, increased by 235.3% year-on-year. With x-axis haptic motors gradually penetrating into mid- to low-end smartphone models, it is expected that the shipment volume of the group's Android x-axis haptics motors will have multiple growth in 2022. In Q4, the utilization rate of the Precision Mechanics segment, particularly the metal casing products, has improved due to increased demand from major customers and the optimization of product portfolio. The gross profit margin increased significantly Q-on-Q. The group has consolidated the financial results of Toyo Precision as part of the Precision Mechanics segment, reinforcing the group's production capability. Leveraging on Toyo Precision's rich experience in serving European and American customers, the group will continue to expand customer base to improve revenue and overall profitability of this business segment. Lastly, for our MEMS business. In 2021, the group's MEMS business revenue was RMB 1.01 billion, down 6.4% year-on-year; and gross profit margin was 15.1%, down 2.4 percentage points year-on-year. In Q4, the MEMS business recorded a revenue of RMB 238 million, down by 7.1% year-on-year. Gross profit margin was 12.5%, down 5.2 percentage points year-on-year. Compared to Q3, revenue decreased by 5.9% and gross profit margin declined by 2.7 percentage points. This was mainly due to the decline in ASP from major customers and an increased proportion of low-end products in the product mix. In the future, while maintaining a stable and high market share in the smartphone market, the group's MEMS microphone products will continue to expand into other markets such as TWS, smartphone speakers, tablets and automotive markets. So this concludes the overview of our Q4 financial results. There are some supplementary information in the appendix for your reference. Now our management team are here to take your questions. You can ask questions in Chinese and English. We have simultaneous interpretation in other line from Chinese to English. Thanks. We can start the Q&A session now.

Okay. Thank you so much for Ms. Huang's precision presentation to the 2021 Q4 financial results and features road map. [Foreign Language]