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Stocks

China's AAC Technologies rides high; iPhone 6 seen to be future boost

HONG KONG --AAC Technologies Holdings is a major Chinese maker of micro audio components, and supplies leading smartphone makers with a wide range of audio products, such as small speakers, microphones and headsets, as well as various parts for tablet computers and video cameras.

     Based in Shenzhen in China's southeastern Guangdong Province, the company counts Apple and Samsung Electronics among its major customers.

     In 2013, AAC drew 60% of its sales from the U.S., and nearly 20% from China, Taiwan and Hong Kong combined.

     In the year ended in December 2013, the audio maker's net profit jumped 46% on the year on the back of strong growth in key components for smartphones. Since this spring, its share prices have been on the whole rising, hitting 52.85 Hong Kong dollars per share on June 17, a record high since its debut on the Hong Kong stock exchange in August 2005.

     Analysts are now raising speculation that Apple will unveil its iPhone 6 this autumn. On June 24, Hong Kong media reported that the world's largest contract electronics manufacturer, Taiwan's Hon Hai Precision Industry, better known as Foxconn, would soon start hiring roughly 100,000 people at its China units to prepare for an expected spike in production volume. The company's stock rose 3% that day.

     Market players have strong expectations for AAC's further growth. "The company supplies parts not only to Apple but also to Chinese smartphone makers, such as Xiaomi, so it is quite competitive,"  said a Hong Kong-based strategist of Japan Asia Securities. "It is also strengthening its non-audio component business in order to diversify its product lineup."

     Also, Goldman Sachs Group has kept the stock's rating unchanged at "buy" in its research note, providing yet another buying incentive for investors. Goldman Sachs also said that growing use of the fourth-generation (4G) mobile phones in China is providing a boost for antennas and other relevant parts, and has set AAC's target share price at $HK 54, up 13% from its previous assessment. This suggests that the stock still has room to rise.

     But "the stock price has factored in most of these positive factors," said one analyst at a brokerage house. In January, investors sold AAC shares as Apple's iPhone shipments failed to reach expected levels. As such, it is important to note that the stock is susceptible to developments at these smartphone makers.

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