Audio Pixels Holdings (AKP) - Investment thesis is getting louder and clearer
AKP has successfully tested its audio chip outside of the cleanroom, and in doing so, cleared what could be the last major hurdle on the path to commercialisation. While AKP still needs to package its new MEMS, once manufactured, and complete development of its evaluation tool for third-party validation, this is months not years away. We reiterate our Buy and $38.48ps TP.
AKP’s chip is now working outside the cleanroom
AKP has achieved another significant milestone on its path to commercialising what could be the world’s first digital speaker, having confirmed a successful testing of its technology outside of the cleanroom.
While the packaging and performance (frequency range and decibels) of AKP’s audio chips were suboptimal due to the use of outdated MEMS, this was expected, with AKP still labelling the tests a resounding success.
Of the 30 audio chips that were packaged for testing, only 6 performed to expectations. This was attributed to the use of legacy MEMS with known defects that have already been addressed via a new MEMS design.
The key takeaways are that the packaged audio chip (i) functions as intended outside of the cleanroom, (ii) can be scaled to address different end markets, and (iii) is expected to perform optimally with the new MEMS.
Next steps to commercialisation are less complex
With the major development hurdles now passed, the key focus for AKP turns to (i) packaging the new MEMS, once manufactured, and (ii) finalising development of the evaluation board for chip validation by third parties.
Huge addressable market across multiple products
While product applications for the speaker chip are likely to be enormous, we estimate that demand from the premium end of markets such as smartphones, laptops, TVs and luxury cars could total >3bn units p.a.
With a clear first-mover advantage and no known competition across the incumbent manufacturing base, AKP’s TAM is immense, and drives our view that the company will ultimately license its IP to third parties.
Reiterate Buy rating and $38.48ps Target Price
While noting the binary nature of the investment case for AKP, our estimated fair value of $38.48ps continues to be based on attainment of a 10% share of its target markets by CY35, with this equating to NPAT of A$2bn.
Our DCF valuation assumes BD costs of $59m CY21-23, WC/sales of 30%, a CY36 terminal year, and WACC of 21%. Based on an EV/EBITDA of 21x, we estimate AKP will justify its current market capitalisation by CY25
AKP Price at posting:
$29.40 Sentiment: None Disclosure: Held
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