Performance Meeting Transcript | AAC TECH (02018): Explosive Growth in the Thermal Management Business, New Directions in Multiple Fields Set for Concentrated Expansion

On August 20, AAC TECH (02018) released its mid-year performance report for 2026. In the first half of the year, AAC TECH's revenue reached a record high of RMB 14.51 billion, an increase of 8.9% year-on-year; the gross profit margin was 22.4%, up 1.7 percentage points year-on-year; the reported net profit was RMB 901 million, representing a year-on-year increase of 2.9% (when excluding other income and losses related to fair value gains and losses, the net profit increased by 37.4% year-on-year); the net cash inflow from operating activities was RMB 1.91 billion. The companys management stated that despite the impact of macro factors such as fluctuations in memory prices in the first half of the year, the company still achieved an 8.9% year-on-year growth in operating revenue and a 1.7 percentage point increase in gross profit margin. In the second half of the year, with the arrival of the peak season and the gradual ramp-up of AI-related businesses, the company is confident of achieving double-digit revenue growth for the full year and further improving gross profit margins. In the future, the company plans to deepen its layout in new directions such as heat dissipation VC, active cooling, AI devices and gimbals, CDU liquid cooling, Siasun Robot & Automation core components, AR optics, and WLG communication modules. The concentrated ramp-up in multiple new directions is expected to contribute to a revenue scale of RMB 8 billion to 9 billion from new direction businesses by 2027, with specific expectations as follows: Heat dissipation VC + active cooling: Revenue expected to reach around RMB 5 billion or higher next year; AI devices + gimbals: Expected revenue scale is around RMB 1.5 billion; CDU liquid cooling: Expected revenue scale is around RMB 1 billion; core components of Siasun Robot & Automation and desktop devices: Expected to reach a scale of RMB 400 million to RMB 700 million; new vehicle acoustic layout business: Expected to reach a scale of RMB 500 million; WLG optical communication business: Expected to achieve a scale of at least RMB 100 million. Below is the compiled Q&A transcript from the AAC TECH earnings conference: Question: Regarding the heat dissipation business, some investment banks predict a 110% year-on-year growth in heat-related revenue to RMB 3.5 billion by 2026. How does management view this prediction? Additionally, what were the respective shares of consumer electronics and server liquid cooling in the revenue from the heat dissipation business in the first half? The company has been continuously laying out new development directions in the heat dissipation sector. The precision board segment is expected to achieve over 30% year-on-year growth by 2026, with the DRIVE of the heat dissipation business being very strong. Particularly, in the future layout of new directions, including the penetration rate of active cooling products in the mobile phone sector, is expected to maintain sustained high growth in the coming years. The company previously completed the acquisition of Yuandi Technology, covering CDU and liquid cooling-related businesses. This year, liquid cooling business is expected to achieve a revenue scale of about RMB 200 million, and next year it is anticipated to grow to nearly RMB 1 billion, making it a rapidly growing sector. Question: Noting that the company is mainly focusing on light engines and waveguides in the AR field, what is the company's consideration for this layout? What is the progress of related projects? Will the company consider laying out the AR complete machine business in the future? The company acquired the Finnish waveguide design company Dispelix and quickly entered this field. At the same time, with the promotion of major overseas clients, the company recently completed the integration of a globally leading Light Engine R&D team. Through this transaction, the company has effectively and directly accessed overseas core customer resources, providing high certainty for future R&D roadmaps and project resources. By integrating globally leading waveguide technologies, light engine optics technologies, and prism technologies based on WLG (wafer-level glass), the company has the capability to produce the entire display module. In AR glasses, the display module (including waveguide, optics, etc.) accounts for as much as 40% to 50% of BOM costs. Combining with AAC's inherent strengths in acoustics and motors, the company has already established production capabilities for most of the BOM of AR glasses. Whether to actively enter the complete machine assembly field will depend on a comprehensive evaluation of customer demand, manufacturing processes, the gross margin level of assembly business, and the overall asset return ratio before making a decision. Question: What is the specific layout of the company in the optical communication field? What unique advantages does it have compared to other companies? In the optical communication field, the company is conducting technical exchanges and cooperation with a leading overseas optical communication company. AAC itself has accumulated strong optical manufacturing capabilities in the consumer electronics field, and its years of accumulated WLG technology layout and precision manufacturing advantages (especially the manufacturing advantages of WLG in terms of precision) have been recognized by overseas clients. Therefore, the company has substantial market potential in areas such as lenses and FAU (fiber array). Question: After consolidating Yuandi Technology, what is the current certification progress of American cloud vendors? Additionally, when the active cooling blade is projected to go into mass production in 2027, what is the approximate value per unit? Overall, the company has good market growth opportunities in the liquid cooling plate head and manifold device areas. This year's target revenue for this business is RMB 200 million, and it is expected to grow to about RMB 1 billion next year, with significant growth potential in this field in the coming years. The company is actively working on certifications with overseas clients and has engaged in in-depth discussions and promotion; if there are any concrete developments, we will communicate them promptly. The specific value per unit is not convenient to share at the moment. Question: Regarding the automotive acoustic business, while the automotive market faced sales pressure in the first half of the year, the automotive acoustic revenue saw significant growth. What is the reason for this? Where did the main increment come from? What is the progress of automotive optics, and have they entered major clients like Tesla? In the automotive acoustic field, the company not only provides in-car speakers but has also successfully achieved shipments of complete acoustic systems through acquisitions, including brand, tuning, speakers, amplifiers, and in-car MEMS capabilities. This year, the overall production line for automotive applications is expected to achieve a 15% to 20% increase, which is quite significant in a competitive automotive market. In terms of gross margin, driven by brands and systems, the overall gross margin (excluding amplifiers) has been stable and on the rise, providing ample opportunities for further growth in the automotive field, especially with the continued layout among multiple automotive Tier-1 suppliers offering more market opportunities. Due to commercial confidentiality, we generally do not discuss specific projects or clients. However, in the automotive optics field, progress is proceeding very well, and we have obtained important client certifications, expecting to achieve mass production and shipping by the end of this year. Question: The consumer electronics industry is typically in a low season in the first half of the year. What proportion did the company's performance in the first half of the year represent for the whole year, and how does it compare to past trends? Is there any difference this year? Regarding the company's "second growth curve," which businesses will contribute significantly to the company's performance first? Due to factors such as rising memory prices, there has been a certain adjustment in the revenue proportion between the Android side and overseas clients in the first half, which reflects changes in market guidelines from leading Android manufacturers and overseas clients based on mobile phone shipment volumes. From the consumption patterns in the first half of this year, the second half is typically the peak season for the industry, and the concentrated release of new models (especially major overseas models) is expected to drive substantial growth. Overall, the group achieved an 8.9% year-on-year growth in revenue in the first half, and the company is confident of achieving double-digit revenue growth for the full year. In the second half, new products like precision heat dissipation VC will provide a higher revenue increase. As for gross margin, it improved by around 1.7 percentage points year-on-year in the first half, and it is expected to further increase in the second half based on the first half's performance. Regarding the second growth curve, in addition to a deep layout in traditional consumer electronics (acoustics, electromagnetic drives, precision components, optics), the company has firmly grasped the edge opportunities brought about by AI. Whether its active cooling systems, Siasun Robot & Automation, AI server liquid cooling, or AR/VR products and optical communication fields, the company has made long-term layouts. Although short-term adjustments have been affected by memory prices impacting the mobile phone market, with the memory prices returning to lower levels, BOM budgets will be reallocated to other components. With the continuous upgrading in performance of mobile phone components driven by AI, the company is expected to see steady and rapid improvements in both traditional and emerging fields. Question: I understand the company is transitioning to become an "AI perception infrastructure supplier." What is the current progress? Are there any specific customer collaboration projects that can be shared? Regarding AI infrastructure, in the AI server liquid cooling field, the company has achieved about RMB 200 million in revenue this year, covering major domestic clients, and there will be new projects launching in Southeast Asia this year while actively promoting certification with major overseas clients. In addition, the AI hardware side has brought abundant opportunities in server cooling and optical communication; the company has laid out VC + active cooling solutions for mobile phones and will expand these to server applications. In terms of optical communication, the company will also leverage its accumulated experience in WLG and high-precision glass manufacturing processes in the mobile phone sector and continue advancing in the optical communication field. Question: This year, the first half experienced rapid growth in sensors and semiconductors. What was the specific reason for this? What are the future prospects for high signal-to-noise ratio MEMS microphones in the field of AI? In the first half of this year, overseas core customers required MEMS microphone products with higher signal-to-noise ratios and lower power consumption due to the demand for AI mobile phone applications, in order to better serve real-time voice interaction scenarios. It is estimated that the revenue of the sensor and semiconductor segment will increase by 15% to 20% year-on-year, and it is expected to maintain a high growth rate in the coming years. As the application scenarios of AI hardware extend from consumer electronics and mobile phones to wearable devices and desktop applications, real-time interactions will pose high requirements for high signal-to-noise ratios and low power consumption. AAC possesses industry-leading R&D and manufacturing capabilities, with the arrival of diverse wearable devices and desktop Siasun Robot & Automation products expected to bring a wider application space. Question: First, from the perspective of core component suppliers, what stage has the embodied intelligence industry currently reached, and which technologies are beginning to converge? Second, what is the progress of the companys collaboration with overseas major desktop AISiasun Robot & Automation? Third, what is the most critical variable for Siasun Robot & Automation's related income to grow from RMB 100 million to RMB 1 billion? Currently, the forms of embodied Siasun Robot & Automation do not yet allow for a definitive conclusion, as their application scenarios are extremely diverse and specific, such as dedicated Siasun Robot & Automation in professional contexts. In the future, there will be a trend of parallel development for small Siasun Robot & Automation, desktop Siasun Robot & Automation, and various new forms of Siasun Robot & Automation. The company is currently conducting in-depth cooperation with several leading overseas Siasun Robot & Automation manufacturers, relying on its manufacturing capabilities in motors, gimbals, and other areas to make comprehensive layouts. As diverse forms of AI devices come to market, the company expects that next year, related businesses in Siasun Robot & Automation and desktop AI devices will initially reach a scale of RMB 400 million to RMB 700 million. In the coming years, with product diversification development and the support from large model companies, the industry will witness a flourishing scene development, and the company will achieve faster incremental growth. Question: Can management summarize the performance growth rates of various business segments in the first half of the year and the guidance for the full year? Overall, despite the challenges in the broader environment, the company's financial performance in the first half of the year has been stable, with gross margins in each segment remaining steady and improving. The ramp-up of various AI-related products in the second half of the year and in the medium to long term will support the healthy development of the company. The group is expected to achieve double-digit revenue growth for the full year, with gross margins expected to further improve based on last year and the first half of this year.