Entering the smart car track is not a "good medicine" for listed companies. The shortcut mode of overseas acquisitions is not "timely rain".
This week, the rating agency Moody's announced that it confirmed that the rating of AAC Technology (02018.HK) has been adjusted from "stable" to "negative". Moody's said that AAC Technology's proposed acquisition of Premium Sounds Solutions (PSS) may hide considerable risks.
On August 11, AAC Technology announced the indirect acquisition of PSS, a car audio system solution provider. The board of directors believes that the company will enter the car front-assembly track in 2021. This move is to accelerate the improvement of the business development capabilities of OEM customers.
At its peak, the market value of AAC Technology in the Hong Kong stock market was as high as 200 billion Hong Kong dollars; however, in the past five years, the company's market value has fallen all the way to less than 20 billion Hong Kong dollars.
Just on March 23 this year, at the company's 2022 annual performance conference, the management of AAC Technologies stated that the company is actively creating a second growth curve, and through new businesses such as vehicle acoustics, vehicle optics, and AR/VR, it has activated new growth drivers.
The good news is that the company expects that in 2023, hundreds of millions of revenue will be contributed by the vehicle business sector, and the cumulative fixed-point projects have exceeded 1 billion. A typical case is the 720° surround sound system with 7.1.4 channels and 21 speakers tailored by AAC Technology for Nezha S.
However, for AAC Technology, the bigger problem lies in the weakness of its main business.
Data show that in 2022, AAC Technologies will achieve revenue of 20.625 billion yuan (RMB, the same below), a year-on-year increase of 16.7%; net profit of 821 million yuan, a year-on-year decrease of 37.6%.
The reason is that, currently, the company's smartphone-related product line, which derives the vast majority of its revenue from the consumer electronics market, is uncertain in the market due to the expected slowdown in the global economy and weakening consumer sentiment and demand.
Recently, AAC Technology issued a profit warning. The company’s net profit in the first half of 2023 is expected to drop to 122 million to 157 million yuan, a decrease of about 55% to 65% compared to the same period in 2022.
In addition, the company's net profit has experienced negative growth for five consecutive years, and the net interest rate has dropped sharply from 25.10% in 2017 to 3.04% in 2022.
Diversified expansion has become a top priority for AAC Technologies.
In June 2022, AAC Technologies attempted to spin off its optical business subsidiary, Chengrui Optics, to be listed on the Sci-Tech Innovation Board of the Shanghai Stock Exchange. Among them, the full range of automotive lenses and overall optical solutions are one of the highlights.
Public information shows that Chengrui Optics can provide a series of products such as smart driving lenses and camera modules, smart cockpit lenses and camera modules, smart driving lidar optical components, AR-HUD optical components, and smart DLP headlight optical components. The overall layout of the vehicle field has been preliminarily completed.
However, the ensuing lawsuit caught Chengrui Optical by surprise.
On November 15, 2022, Sunny Optical issued an announcement stating that it had initiated a lawsuit against Chengrui Optical and its three affiliated companies, arguing that it infringed a number of patents on plastic mobile phone lenses and glass-plastic hybrid lenses.
In addition to the company's "clearance-style" reduction of holdings by Sequoia on the eve of listing, and the cumulative loss of more than 1.2 billion yuan in the past three years, Chengrui Optical finally failed to list, and voluntarily withdrew its listing application at the end of 2022.
The acquisition of the automotive acoustic track (approximately US$525 million) is AAC’s hope to quickly form large-scale revenue in the automotive acoustics (audio) field.
The reason is that the company's optical components business faces challenges from pricing pressure from competition, increased product portfolio specification to improve profitability, and investment required for product improvement and innovation.
However, PSS is not a branded audio system. The company was formerly known as Philips Speaker System and is headquartered in Belgium. In addition to directly providing speakers for car companies, the business is also a foundry for some brand audio companies.
Generally speaking, car audio is mainly divided into two categories: branded audio and white brand audio. Typical representatives of branded audio include: Harman Kardon, Dynaudio, B&O, Baohua Weijian, BOSE, etc.;
According to the monitoring data of Gaogong Intelligent Automobile Research Institute, in the Chinese passenger car market, BOSE and Harman (including multiple brands) account for more than 80% of the brand audio market share, while more high-end brands are Most are optional.
The main customers of white-brand audio are car companies and brand audio (providing OEM services), typical representatives are Shangsheng Electronics, PSS, etc. Among them, taking the above acoustic electronics as an example, the gross profit margin of the company's car speakers will be around 20% in 2022.
However, for these speaker manufacturers, there is not much room for market growth.
According to the monitoring data of Gaogong Intelligent Vehicle Research Institute, in 2022, there will be 134 million standard speakers for passenger cars in the Chinese market (excluding imports and exports), a slight increase of 4.69% year-on-year, and an average of 6-7 speakers per vehicle.
This means that in a track with limited hardware increments, the value of OEMs is far less than that of brand owners. This also directly leads to the lack of bargaining power of the products to midstream and downstream customers, and low gross and net profit margins.
For example, compared with traditional high-end car audio giants, Shangsheng Electronics still has a big gap in terms of product pricing dominance and market share. "The company is still focusing on cost-effective products at present."
In the past, most of the audio experience in the car depended on brand speakers, amplifiers and audio tuning. Behind this, car companies not only have to pay huge costs, but also have a long development cycle.
At the same time, car audio has also entered a new era, software-defined sound quality. Behind it is the decoupling of software and hardware, which puts more emphasis on the improvement of software algorithm capabilities (reducing the weight of hardware), and realizes various indicators of traditional high-end brand audio through sound processing software.
One of the reasons is that, limited by the cockpit space, the layout of the speakers in the car, and the algorithm capabilities, the experience of the traditional car audio (sound) system is not good (for example, OTA is not available); at the same time, the audio system and the car and the application ecology have not yet been realized. Fully integrated, the process of intelligentization is slow.
For example, iFLYTEK’s Feiyu car intelligent audio management system has launched a multi-mode fusion intelligent cockpit AI sound effect solution, a vehicle noise solution that integrates active noise reduction and sound waves, and AI-aware in-car interaction and 3D surround sound. technology.
So far, Flying Fish's in-vehicle intelligent audio management system has reached in-depth cooperation with nearly 30 mass-produced models of many mainstream car companies such as FAW, SAIC, GAC, Chery, Jiangling, JAC, Ford, and Honda. This has had a considerable impact on the traditional car audio market.
As one of the global leaders in car brand audio, HARMAN will also officially release two innovative solutions, Ready Together and Software-Enabled Branded Audio (pure software brand audio) in 2022.
Among them, the latter is a set of customizable software platforms that can improve the sound quality and functions of existing car audio systems with one click. This means that car owners can upgrade the original car's non-branded audio experience without additional hardware changes.
At the same time, leading car companies are also continuously strengthening the self-development of car audio systems. For example, Ideal L9, based on the speaker hardware provided by Shangsheng Electronics, the ideal car self-developed audio algorithm, and based on Dolby Atmos technology, built a 4D immersive audio-visual system.
In the view of Gaogong Intelligent Vehicle Research Institute, there will be a trend of value stratification in the future on-board acoustic track. Among them, self-developed algorithms by leading car companies will become a trend. Brand audio + software algorithm capabilities will be the label of the first echelon, and the competition in the speaker OEM track will be fierce.
Previously, Shangsheng Electronics had publicly stated that with the intensification of market competition and the increase of labor costs, the company's gross profit margin faced the risk of further decline. Even if the company has already obtained the designation of new projects for multiple car series of leading car companies such as BYD, Weilai, Tesla, Daimler, and Ideal.