瑞声科技（02018） 　　What’s new? The stock has corrected by over 20% since early Sept, providing a goodre-entry opportunity at an attractive price (the stock is now trading at around 16.8x 2017EP/E). We upgrade our rating from Hold to Buy. 　　Share price correction provides good re-entry point The stock has had a strong rallyup to Sept this year, underpinned by the build-up of positive expectations related to thelaunch of Apple’s iPhone 7/7+ in Sept and the positive surprise of AAC Tech’s inclusionin the HS Index in Aug. The stock peaked in early Sept, as investors took profit, believingthese positive factors were largely priced in. The emergence of negatives news ofdeteriorating cash flow at LeEco (formerly LeTV and part of Leshi Internet Information &Technology (300104 CH)), a key customer for AAC Tech’s fledging RF/mechanicalbusiness (metal casings and antennas), also weighed on the share price. 　　Risk exposure to LeEco and worst-case scenario LeEco was the first customer forAAC Tech's RF/mechanical products, which it uses in its smartphones. AAC Techcurrently has about 4,500 in-house CNC machine sets engaged in the RF/mechanicalbusiness. We estimate AAC Tech generated RF/mechanical sales of up to Rmb1bn in9M16, or about 10% of sales during the period. In a worst-case scenario, 2016 net profitcould drop by about 26%, assuming AAC Tech writes off 100% of its Rmb1bnRF/mechanical sales, based on our 2016 full year consensus of Rmb3.8bn. The actualimpact would be substantially smaller, as: 1) LeEco is not AAC Tech’s only customer forits RF/mechanicals products; 2) AAC does business with LeEco via a handset assemblycompany, which has already settled a portion of the accounts payable to AAC Tech, and;3) LeEco has obtained financial resources to stabilize the group’s financial position.During the 3Q16 results conference call, management mentioned there will not be anywrite-offs in 2016. 　　Positive business outlook 3Q16 earnings grew 29% YoY, boosting 9M16 YoY earningsgrowth to 17% YoY, largely in line with the company’s previous guidance of back-endloaded growth in 2016 (1H16 earnings grew by just 9% YoY). For 4Q16, managementexpects double-digit QoQ sales growth, and a stable or slightly better GPM amid highersales in the traditional peak season. For 2017, management expects 4Q16’s robust ordermomentum to spill over into 1Q17 and is targeting 20% overall sales growth for 2017,driven by RF/mechanical and core acoustic components. 　　Upgrade to Buy We raise our 2017 EPS estimate by 13% after revising up our salesforecasts by 11%. We set a new target price of HK$83.26 (up from HK$56.05), with atarget P/E multiple of 20x our 2017 EPS estimate (previously based on our 2016 EPSestimate). Our new target price implies over 20% upside from the current share price level. 　　Key risks Downside risks include: 1) worse-than-expected iPhone shipments in 2017(Apple (AAPL US, NR) is AAC Tech’s single largest customer); 2) slowdown insmartphone shipment momentum among Chinese smartphone makers (who accountedfor 41% of group revenue in 9M16).