The rapid development of AI technology is transforming smart terminals, and Apple Inc. is using AI as a selling point for the upcoming iPhone 16, which has garnered significant market attention. How companies in the A-share industry chain will benefit from the AI wave is also a focus of investor interest.

Recently, the three giants of the "Apple supply chain," Luxshare Precision (002475.SZ), Goertek (002241.SZ), and Lens Technology (300433.SZ), have successively "handed in their exam papers." Overall, with the weak recovery of the global consumer electronics market, the net profits of all three companies have achieved year-on-year growth, and the net profit growth rate is higher than the revenue growth rate. This phenomenon is currently interpreted by many investors as "AI demand is not yet able to significantly drive the revenue side."

This year, institutions have intensively researched these three listed companies, with "AI" being a high-frequency term in each research meeting. However, looking at the mid-year performance, the contribution of AI business to the performance of the "Apple supply chain" leaders is still small. As Apple's autumn launch event approaches, combined with the third quarter being the traditional peak season for the consumer electronics industry, whether the new products can allow listed companies in the industry chain to "harvest more," has also become a key point of investor attention.

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As of the closing on the 26th, the year-to-date price changes for Luxshare Precision, Goertek, and Lens Technology were 9.22%, -3.24%, and 31.11%, respectively.

The profit growth rate of the three giants in the Apple supply chain is higher than the revenue growth rate.

Over the past decade, the gradual increase in smartphone penetration has driven the overall sales volume of mobile phones. Mainland China has deeply participated in the Apple industry chain, giving rise to leading companies in the industry chain such as Luxshare Precision, Lens Technology, and Goertek. They have grown together with Apple Inc. and were once the darlings of the secondary market.

After experiencing the low consumer electronics market sentiment and shrinking terminal demand in 2023, the industry sentiment has gradually warmed up this year. The global consumer electronics market is gradually entering the AI era. More and more mobile terminals such as smartphones, PCs, and tablets are empowered by AI applications on the terminal side. Under the resonance of the industrial recovery cycle, market demand is further stimulated.

In the first half of this year, the revenue growth rates of the three listed companies have diverged, while the growth rates of net profits attributable to the parent company are all higher than the revenue growth rates.

Luxshare Precision has the largest revenue volume and the lowest revenue growth rate. The company achieved a revenue of 103.597 billion yuan and a net profit attributable to the parent company of 5.396 billion yuan in the first half of the year, with year-on-year growth rates of 5.74% and 23.9%, respectively. At the same time as releasing the mid-year report, Luxshare Precision provided a performance forecast for the third quarter, expecting to achieve a net profit attributable to the parent company of 3.452 billion yuan to 3.821 billion yuan in the third quarter, with a year-on-year increase of 14.39% to 26.61%. The lower limit of the expected value exceeded the profit scale of the first and second quarters, reflecting the peak season sentiment of the industry in the third quarter.

Goertek's net profit attributable to the parent company in the first half of the year grew by 190.44% year-on-year, reaching 1.225 billion yuan, the highest growth rate among the three, while revenue fell by 10.6% year-on-year, to 40.35 billion yuan. The increase in gross margin is one of the reasons why Goertek's profit growth rate exceeds the revenue growth rate. During the reporting period, the company's gross margin increased by 4.33 percentage points year-on-year to 11.57%. In addition, in the second quarter, the shipment of some key product projects in the company's smart acoustic whole machine and smart hardware business increased, and the proportion of the assembly business with relatively low gross margin in revenue decreased, together driving the improvement of profitability.Lans Technology's operating income and net profit attributable to the parent company in the first half of the year increased by 43.06% and 55.38% year-on-year, respectively, amounting to 28.866 billion yuan and 861 million yuan. During the reporting period, among Lans Technology's four major businesses, only the gross margin of the smart head-mounted display and smart wearables business increased year-on-year. Although the gross margins of the other three major businesses declined to varying degrees, their revenues grew significantly, achieving a trade-off between volume and price.

AI is just starting, and it is still difficult to provide incremental performance.

The consumer electronics industry is brewing new industrial opportunities. AI artificial intelligence technology, represented by large language models, has made remarkable progress, bringing a new round of development opportunities to the consumer electronics industry. In particular, the acceleration of AI on the edge has not only directly accelerated the replacement cycle of smartphones and PCs but also put forward higher requirements for product design and hardware performance, including the enhancement of heat dissipation performance corresponding to the increase in computing power, optimization of spatial structure, etc., thereby promoting the value enhancement of the related industry chain.

Specifically, looking at the three listed companies mentioned above, the contribution of AI business to the overall performance is still small. Luxshare Precision's three major businesses jointly drive the stable growth of performance, namely consumer electronics, communication, and automotive, while the VisionPro assembly business related to AI has suffered losses due to poor demand, and whether the losses in the second half of the year can be effectively controlled remains to be observed.

In terms of Lans Technology, the smart head-mounted display and smart wearables business, which are highly related to AI, achieved an operating income of 1.435 billion yuan in the first half of the year, a year-on-year increase of 20.52%, with a gross margin of 13.59%, an increase of 5.25 percentage points year-on-year. Compared with the other three major businesses of the company, although the gross profit level of the smart head-mounted display and smart wearables business has been greatly improved, the revenue volume is the smallest, accounting for only 5% of the total revenue, and its impact on the total revenue is still small.

Goertek's two major businesses, close-fit components and smart acoustic whole machines, contributed to the increase in revenue and profit, while the smart hardware business, which is more closely related to AI, saw a year-on-year decline in revenue of 32.31%. According to a research report by Huachuang Securities, the decline in this business is mainly due to the normal reduction in volume of the game console assembly project in the later stage of the product life cycle and other factors.

"The significant increase in industrial value and industry chain valuation brought about by Apple's major innovations has always been remarkable. The structural changes in innovation provide more opportunities for component suppliers to increase their supply share," said an analyst in the TMT industry to First Financial. "The premise of market share growth is that consumers pay for innovation. Whether AI phones can replace traditional phones like smartphones, creating continuous, multi-year replacement demand, is currently uncertain. At least, the sales of wearable AI products are not ideal."

After the mid-term report, the market's performance expectations for consumer electronics leading stocks are focused on the third quarter. This quarter is the peak season for the electronics industry every year and also the peak season for stocking up before the release of new Apple products. It is understood that in addition to the iPhone 16, Apple may release two brand new AirPods products in September, and there have been rumors that the all-new iPad mini 7 will also be unveiled at the press conference.

Luxshare Precision released the latest institutional research on the morning of August 26, stating that it believes the development of AI technology in the second half of the year will bring opportunities for innovation-driven growth in the consumer electronics industry. This includes both the incremental increase in parts and system upgrades brought by the increase in the total amount of terminal products, and the incremental changes brought by new specifications and process innovations.

Regarding the development prospects of AR/VR smart glasses, Luxshare Precision frankly stated that there is a certain market demand for smart glasses, but the market demand for these products is still relatively small. In the next few years, only leading enterprises with the ability to combine software and hardware will have the opportunity to create a terminal product with a demand of tens of millions or even hundreds of millions.The aforementioned analyst further stated that the current integration of AI with the consumer electronics industry is in the first phase, where hardware adapts to AI workloads, and innovative features catalyze the replacement of existing devices. "AI workloads have raised the requirements for various aspects such as chip architecture, heat dissipation, materials, storage, and batteries. Compatibility is the first principle, with software and hardware promoting each other. The aforementioned analyst said: 'Apple's high base of existing users is the foundation for the future wave of device replacements. In the medium to long term, AI innovation undoubtedly creates demand and can drive certain demand, but the impact of pricing positioning and consumer willingness on the penetration rate of AI device replacements should not be overlooked."