Investment Rating - The report upgrades the investment rating of AAC Technologies from NEUTRAL to BUY with a target price of HK$ 37.24, representing an upside of 19.2% from the current price of HK$ 31.25 [1]. Core Insights - AAC Technologies reported a net profit of RMB 537 million for 1H24, a significant increase of 257% year-on-year, driven by a recovery in gross margin across all segments [1][2]. - The company achieved a blended gross margin of 20% for the first time since 1H21, with expectations of continued growth in automotive-related business and optics segments [1][2]. - Management expressed a more optimistic outlook for business segments compared to FY23, indicating a clearer vision for mid-term growth [1][2]. Revenue Breakdown - **Acoustics Segment**: Contributed approximately 31% of 1H24 revenue, with sales rising 4.1% year-on-year to RMB 3,466 million and gross margin increasing to 29.9% [1][2]. - **Haptics and Precision Mechanics**: Accounted for around 33% of 1H24 revenue, with a revenue growth of 1.1% year-on-year to RMB 3,660 million and gross margin rising to 22.9% [2]. - **Optics Segment**: Represented about 20% of 1H24 revenue, with a 25% year-on-year increase in revenue to RMB 2,210 million and a gross margin improvement to 4.7% [4][5]. Future Projections - The report anticipates a compound annual growth rate (CAGR) of 10.5% for sales and 17.0% for net profit from FY24E to FY26E, supported by higher sales forecasts and improved gross margins [5][6]. - Management expects optics segment revenue to grow by 20% and shipment by 40% in FY24E, indicating a positive trend in product demand and pricing [5][6]. Strategic Positioning - AAC Technologies is positioned to benefit from the automotive acoustics market through its acquisition of PSS, which has a market share of 15-20% in the global automotive speaker market [1][2]. - The company is leveraging its expertise in acoustic solutions to meet the growing demand for intelligent cockpit systems in vehicles, indicating a strategic expansion into new market niches [1][2].

Investment Rating - The report upgrades the investment rating to BUY with a target price of HK$5.44, reflecting an upside of 17.5% from the current price of HK$4.63 [2][7]. Core Insights - The robust performance in 1H24 is attributed to improved gross margins (GM) and stable shipment volumes, with revenue and net profit soaring by 40.1% and 453.9% year-on-year, respectively [2][6]. - The company is expected to achieve a compound annual growth rate (CAGR) of 31% in earnings from FY24E to FY26E, driven by quality growth and gradual recovery in sales and GM [6][7]. - The non-smartphone segment, particularly in automotive and IoT, is showing significant growth potential, with automotive CCM sales volume up 15 times year-on-year in 1H24 [3][4]. Summary by Sections Financial Performance - In 1H24, QT's camera module (CCM) revenue increased by 44.5% year-on-year to RMB7,215 million, driven by higher average selling prices (ASP) and smartphone CCM shipment volume growth of 10.5% year-on-year [2][6]. - The blended GM improved by 1.8 percentage points year-on-year to 5.2%, supported by a better product mix and higher utilization rates [2][6]. Market Position and Strategy - QT aims to position itself as a Tier-1.5 player, providing both hardware and software solutions to Tier-1 clients, with expectations of higher ASP and GM in the long run for automotive CCM products [4][6]. - The company has successfully diversified its product mix and is exploring business opportunities in the automotive intelligent vision industry chain, including automotive lenses and LiDAR modules [3][4]. Shipment and Production - In 1H24, QT's total CCM shipment reached approximately 255 million units, with smartphone CCM contributing around 249 million units, reflecting a 25.8% year-on-year increase [2][6]. - The company has doubled its non-smartphone CCM shipment in 1H24, accounting for about 2.5% of total shipments, indicating strong progress in this segment [2][6]. Future Outlook - The report anticipates that QT's sales and net profit will grow at a CAGR of 13.0% and 31.5%, respectively, from FY24E to FY26E, as management focuses on long-term quality growth [6][7]. - The non-smartphone segment is expected to ramp up gradually, with minimal contribution projected for FY24E and FY25E [6][7].

Investment Rating - Trading Sell [2][14][30] Core Insights - The company experienced a sales drop of 12% YoY in 1HFY24, primarily due to a decrease in average selling price (ASP) by 12.9% in HKD terms, although sales volume remained resilient at approximately 19 million pieces, reflecting a 1.7% YoY increase [1][10] - Management anticipates a better performance in 2HFY24, driven by fast orders from Japanese clients, with an expected sales volume growth in FY24E at mid-single digits YoY, a revision from previous guidance of a mid-single digit drop [1][12] - The net gearing ratio improved significantly, declining to approximately 3.0% in 1HFY24 from 13.0% in FY23, allowing the company to raise its payout ratio to 75% in 1HFY24 [11][12] Financial Performance - The company's core net profit for FY24E is projected to reach HK$350 million, supported by volume growth and gross profit margin (GPM) expansion due to lower production costs [4] - The company is currently trading at a FY24E PE valuation of 4.7x, which is about a 54% discount compared to its HK-listed textile peers [4] - The target price for the company is set at HK$0.87, indicating a potential upside of 21.1% from the current price of HK$0.72 [14] Operational Developments - The company is expanding its production capacity in Vietnam to reduce lead times and meet client demand, with expectations that Vietnam will account for approximately two-thirds of its total knitwear capacity [12][13] - The largest customer, Uniqlo, accounted for about 48% of the company's revenue in 1HFY24, and as apparel retailers begin to restock, sales are expected to increase significantly in 2HFY24 [12][13] Market Position - Nameson is recognized as one of the leading knitwear manufacturers in China, providing a comprehensive range of services from raw material development to timely delivery [2][10] - The company has diversified its clientele, supplying to internationally renowned brands such as UNIQLO, Tommy Hilfiger, Under Armour, and Lululemon [2][10]

Investment Rating - The report maintains a "BUY" rating for TK Group (Holdings) Limited with a target price of HK$2.44, indicating an upside potential of 28.5% from the current price of HK$1.90 [6][8]. Core Insights - The company is expected to recover in FY24E, supported by a strong balance sheet and operational efficiency improvements. Despite a decline in FY23 revenue and net profit due to weak downstream demand, the blended gross margin increased to 26.4%, the highest since FY20, driven by significant improvements in the mold fabrication segment [6][8]. - The financial position remains robust, with net operating cash inflow up 20% YoY to HK$445 million in FY23 and a net cash position of approximately HK$1.1 billion, which is about 72% of the market cap [6][9]. Revenue and Profit Forecast - Revenue is projected to grow at a CAGR of 12.5% from FY23 to FY26E, with net profit expected to grow at 18.5% CAGR during the same period. The FY24E PE ratio is estimated at 6.1x, which is considered undemanding compared to historical averages and peers [8][9]. - The order book for FY23 was HK$830 million, primarily driven by automotive and healthcare sectors, which accounted for 46% of the total order book. The order book is expected to increase to approximately HK$1 billion by April [6][8]. Segment Performance - The mold fabrication segment's revenue is expected to grow from HK$620 million in FY23A to HK$718 million by FY26E, with a gross margin projected to remain above 30% [3][6]. - The plastic components manufacturing segment is forecasted to recover from a revenue drop in FY23A to HK$2,060 million by FY26E, with gross margins expected to stabilize in the mid-20s percentage range [3][6]. Dividend Policy - The company raised its dividend payout ratio to 80% in FY23, supported by low CAPEX and strong cash flow. The expected payout ratio for FY24E is projected to remain above 50%, translating into dividend yields of 10.8% and 13.6% for FY23 and FY24E, respectively [9][6]. Market Position and Client Diversification - TK Group continues to diversify its client portfolio, successfully engaging with leading global brands in various sectors, including automotive and healthcare. The company is optimistic about the growth potential in electronic atomizers, which are increasingly used in both e-cigarettes and medical devices [6][8].

Investment Rating - The report maintains a "BUY" rating for BYD Electronic with a target price of HKD 41.35, indicating an upside potential of +54.3% from the current price of HKD 27.10 [2][10]. Core Insights - BYD Electronic's 1Q24 results were in line with expectations, showing revenue growth of 38.5% year-on-year to RMB 36.5 billion and net profit growth of 33% to RMB 610 million, primarily driven by the consolidation of Jabil Singapore [2][3]. - The company is expected to benefit from increased project wins from US clients following the acquisition of Jabil, which positions BYD Electronic as a strategic partner for flagship projects [2][3]. - The generative AI smartphone market is anticipated to drive a new replacement cycle, with shipments expected to grow significantly from 4% in 2023 to 8% in 2024, potentially reaching 522 million units by 2027 [4]. Financial Performance - BYD Electronic's assembly service revenue grew by 23% year-on-year in FY23, while components revenue saw a decline of approximately 4% year-on-year [3]. - The automotive intelligent segment revenue surged by 52% year-on-year to RMB 14.1 billion in FY23, reflecting strong demand for electrification and intelligent systems [7]. - The IoT and automotive segments are projected to achieve over 20% growth in the next 2-3 years, with revenue expected to reach approximately RMB 40 billion to RMB 50 billion in FY24E-25E [7][9]. Earnings Forecast - The report has adjusted BYD Electronic's FY24E and FY25E earnings forecasts, projecting a revenue growth of 25.8% and a net profit growth of 20.0% CAGR from FY23 to FY26E [9][11]. - The company is expected to maintain a gross margin of around 8.0% to 9.0% in the coming years, supported by improved product mix and operational efficiencies [9][11]. Market Position and Strategy - BYD Electronic is diversifying its business away from smartphone-related activities, focusing on IoT and automotive segments as key growth drivers [9][10]. - The company has established a strategic partnership with NVIDIA, which will enhance its capabilities in AI products, including customized servers for internet customers [6][9].

Investment Rating - The report maintains a BUY rating for Sunny Optical with a target price of HKD 49.37, representing an upside of 31.8% from the current price of HKD 37.45 [1]. Core Insights - Sunny Optical's FY23 results were disappointing, with revenue and net income reported at RMB 31,681 million and RMB 1,099 million, reflecting year-on-year declines of 4.6% and 54.3% respectively. The results were below market consensus and the company's own estimates, primarily due to weak smartphone demand, ASP and GM pressures, and increased interest expenses [1][2]. - The company is focusing on improving its product mix to enhance ASP and GM, with expectations for a gradual recovery in global smartphone shipments in FY24E, driven by flagship models from top-tier clients [3][5]. Company Update - Sunny's high-end product contribution has stabilized, with a notable performance in the 6P+ lens segment, which accounted for 32% of the high-end product mix in FY23. However, overall high-end product shipments declined by 20% year-on-year [2]. - The company provided conservative guidance for FY24E, expecting a 5% year-on-year growth in HLS shipments while HCM shipments are anticipated to remain flat [3]. - Sunny's investment in R&D has increased, with R&D expenses reaching approximately RMB 2.6 billion, accounting for 8.1% of total revenue, and FY24E CAPEX is guided to increase by 20% year-on-year to around RMB 3.0 billion [6][7]. Financial Performance - The report indicates a significant reduction in FY24E-25E EPS estimates by 22.4% and 32.7% respectively, due to lower sales and GM assumptions. Despite this, a mild recovery is expected in FY24E [7][10]. - Revenue for FY24E is projected at RMB 35,823 million, with a gross margin of 22.6%, reflecting a decrease of 590 basis points compared to previous estimates [10]. Market Position and Outlook - Sunny Optical holds a dominant position in the Chinese handset market with approximately 50% market share and is well-positioned to benefit from the increasing adoption of automotive products and non-smartphone segments, which accounted for over 30% of total revenue in FY23 [4][7]. - The automotive segment continues to show strong growth, with vehicle-related product sales increasing by 28.6% year-on-year, and the company expects to reach RMB 2.0 billion in automotive CCM revenue for FY24E, representing a 25% year-on-year growth [6].

Investment Rating - The report maintains a "BUY" rating for Anta Sports with a target price of HK$128.8, indicating an upside potential of 51.3% from the current price of HK$85.15 [5][3]. Core Insights - Anta Sports reported FY23 results that exceeded expectations, with revenue of RMB62.4 billion and net profit of RMB10.236 billion, reflecting year-on-year growth of 16.2% and 34.9% respectively. This growth was attributed to improved store productivity, disciplined retail discounting, and increased interest income [1][3]. - The company has set ambitious targets for FY24, aiming for revenue growth of 10-15% for both Anta and Fila brands, and over 20% for Descente and Kolon brands. Operating profit margins are expected to be around 20% for Anta and 25% for Fila [3][5]. Financial Performance - FY23 key highlights include: - Overall online sales increased by 11% year-on-year, with FILA and Descente brands growing by over 10% and 30-40% respectively [2]. - Monthly store productivity reached RMB280-290k, up more than 10% year-on-year, with Fila and Descente nearing RMB1 million and RMB2 million respectively [2]. - Operating cash flow grew by 61% to RMB19.6 billion, driven by a reduction in inventory turnover days from 138 to 123 [2][3]. Future Outlook - The management anticipates a retail sales value (RSV) growth of 4-5% year-on-year for Q1 2024, despite facing some pressure due to a high base and unfavorable weather conditions post-Chinese New Year [2]. - The company plans to maintain inventory levels at 5 times or below for various brands and has set modest store expansion targets, prioritizing productivity [3][5]. - The payout ratio is targeted at 50% for FY24 onwards, supporting continuous expansion through a multi-branded strategy [3][5]. Market Position - Anta Sports is recognized as a leading player in the PRC sporting goods market, with a retail network comprising 9,831 ANTA brand points of sale and 1,972 FILA stores as of December 2023 [6].

Investment Rating - The report maintains a "BUY" rating for Li Ning with a target price of HK$29.40, indicating an upside potential of +38.4% from the current price of HK$21.25 [1]. Core Insights - Li Ning's FY23 results met expectations, with revenue of RMB27.6 billion, reflecting a 7% year-over-year increase, while net profit decreased by 21.6% to RMB3,187 million. The company declared a final dividend of RMB0.19, resulting in a payout ratio of 45% [1]. - Management provided conservative guidance for FY24, targeting a sales growth of approximately 5% and a net profit margin (NPM) of 12-13% [1]. - The company is focusing on operational improvements and quality enhancement, with a goal to drive NPM towards 15% in the mid-to-long term [1]. Financial Performance Summary - FY23 revenue was RMB27.6 billion, up 7% YoY, while net profit was RMB3,187 million, down 21.6% YoY. The gross profit margin (GPM) remained stable at 48.4% [2]. - The operating profit margin (OPM) contracted by 6.0 percentage points to 12.9%, primarily due to an increase in selling and distribution expenses [2]. - The cash conversion cycle extended by 5 days to 35 days, with operating cash flow reaching RMB4.7 billion, a 20% increase YoY [1][2]. Operational Highlights - Direct-to-consumer (DTC) sales mix improved to 25.0% from 20.7% in FY22, contributing positively to the GPM [1]. - The company reported a sell-through rate of 78%, significantly higher than 52% in FY22, indicating improved inventory management [1]. - Channel inventory decreased to 3.6 months, down from 4.2 months in December 2022, reflecting better inventory control [1]. Future Outlook - For FY24, Li Ning aims for a revenue target of RMB29.3 billion, with projected earnings of RMB3.52 billion [1]. - The company plans to optimize its store network, expecting to close over 20 directly operated stores while opening around 100 franchised stores [1]. - Management is implementing measures to control unauthorized sales activities, targeting a reduction of such activities by 50-60% by the end of FY24 [1].

Xtep International | 1368.HK Rating BUY Maintain Saucony stands out among the new brands Target price HK$6.6 4 C Cuu rr rr ee nn t price HK$5.04 Upside: +31.7% Curren FY23 results inline (b reakdown in Exhibit 1): Company update Xtep reported FY23 result with revenue and net profit at RMB14.3bn and RMB1,030mn. up 10.9%/11.8% YoY. While excluding inventory and receivables provisions and 21 Mar 2024 write-backs, the group’s core operating profit/earnings at RMB1,546/RMB996mn, up 4.4%/6.1% YoY. The key highlig ...