Open Source Securities: Initiate coverage on AAC TECH (02018) with a "buy" rating. Diverse products are in line with the trend of AI smartphone industry.

Open Source Securities released a research report stating that it has initiated coverage on AAC TECH (02018) for the first time, giving it a "buy" rating. Considering the trend of acoustic upgrades, the increase in penetration rate of high-end speakers, the slowdown in industry competition trends since 2023H2, the volume growth in new business sectors such as hinges, heat dissipation, and motor shells, as well as the acquisition of PSS to accelerate the expansion of the in-car audio business, it is estimated that the net profit attributable to the parent company will be 1.67 billion, 2.17 billion, and 2.57 billion yuan in 2024-2026. With the company's performance reaching a turning point, the improvement in gross profit margin of various product lines, and the potential benefits from hardware innovation upgrades brought about by the trend of AI smartphones, it is the leading domestic consumer electronics comprehensive service provider, improving optics, acoustics, and structural components collectively. The main points of Open Source Securities are as follows: Since 2023H2, with the recovery of the consumer electronics industry and the rationalization of industry competition, the company's performance has reached a turning point. (1) Acoustics: Benefiting from the upgrade of mid-to-high-end Android machine speakers, the further penetration of the company's SLG master-level speakers into high-end models, driving significant improvement in ASP and gross profit margin; meanwhile, in 2024, the company acquired PSS, a global leader in high-end car audio positioning, the layout of in-car acoustics is expected to open a second growth curve. (2) Optics: With the recovery of the smartphone industry, a slowdown in competition, improvement in the company's product structure, and yield improvement, the company's optical gross margin has improved significantly since 2023H2, with the company guiding that the gross margin of plastic lenses in 2024H2 is expected to improve to above 25%, and the module gross margin to further improve on the basis of 15.6% in 2024H1; at the same time, with the trend of increasing penetration rate of glass plastic lenses in the industry and the background of WLG yield improvement, WLG is expected to rapidly scale up. (3) Precision structural components: Benefiting from trends such as foldable phones, AI smartphones, the company's hinges, heat dissipation are rapidly increasing in volume. Multiple product lines of the company are expected to benefit from hardware innovation upgrades brought about by AI smartphones AAC TECH is a leading domestic consumer electronics leader and comprehensive service provider, spanning multiple fields such as acoustics, optics, electromagnetic drives, and precision structural components. The trend of AI smartphones and foldable phones will bring about hardware-related innovations and upgrades in smartphone acoustics, optics, and structural components, such as lighter and thinner speakers and optical modules, high signal-to-noise ratio microphones, upgraded heat dissipation, etc. The company's multiple product lines are expected to benefit from these advancements.