Sunny Optical Technology (Group) Company Limited 2022 interim results announcement commence now. Good morning, and welcome to the 2022 interim results announcement of Sunny Optical Technology Group. I am Daisy from Investor Relations. On behalf of the company, I'd like to take this opportunity to thank you for your long-term support. Due to the resurgence of the epidemic, we'll have this announcement via remote through the webinar. Sorry for the inconvenience. First of all, please allow me to introduce you the management present here today. They are Executive Director and Chairman, Mr. Ye Liaoning. Executive Director and CEO, Mr. Sun Yang. Vice President and Joint Company Secretary, Mr. Ma Jianfeng. IR Director and the Joint Company Secretary, Madam Huang Peilin. Associate IR Director, Madam Liu Yanfeng. Next, we'll present to you our interim results. The presentation deck has been uploaded to our website. Please feel free to download it. Now, let's welcome the Executive Director and the Chairman, Mr. Sun Yang, to brief you the 2022 interim result. Good morning, investors. I'd like to be on behalf of the management of the group to brief you our 2022 first half results. There are three causes contributing to the results. The first is that the smartphones in the first half of the year, especially the Android phones, is facing a very sluggish market. Compared with the same period last year, there is a great drop of the shipment. The second cause is that the camera modules had a de-spec trend. Thirdly, in the vehicle products, there is a great change of the supply chain, and especially there is a structural change of the chips, and it did not reach our expectation for its growth. Due to these three causes, the revenue, gross margin, and profit had been affected. The revenue for the first half had reached CNY 16.9 billion, dropped by 14.4% compared with the same period last year. The gross profit was at CNY 3.5 million, dropped by 28.8% year-on-year. Profit before tax was CNY 1.68 billion, dropped by 47.9% year-on-year. Effective tax rate was 18.1%, increased slightly. Profit for the period attributable to owners of the company reached CNY 1.35 billion, dropped by 49.5%. Earnings per share reached CNY 1.24, dropped by 49.5%. Admittedly, all of the employees of the group had been working very hard in the first half of the year, but due to the macro economic situations, the result was not very satisfying. Now let's take a look at the expenses. This is the total operating expense, and in the first half of the year, it was 12.3%, slightly increased compared with the same period last year. For the more specifics, the selling and the distribution expenses is about 1%, and increased by 0.2% year-on-year. R&D expenditure, 8.7%, increased by 2% year-on-year. Administrative expenses, 2.6%, increased by 0.7% year-on-year. Why there is an increase of expense? There are mainly two reasons. The first is that although the general economic situation is not very promising, but in AR, VR, and the emerging strategic products and businesses in the vehicle-related aspect had been increasing. We continue the high investment in these segments. We had to take a lot of measures to reduce the cost and to develop the new businesses in the first half of the year. We still need to deal with all of the situations around, and we should not lay off a lot of employees because of such challenging times. We need to get prepared for the future. Maybe what you care about is the annual guidance. Annually, these expenses account for about 12% of the revenue. This is the annual guidance for the expenses. Here you can see some operation indicators, current ratio 1.8, and operating cash flow, it's about CNY 1.5 billion. At present, we have about CNY 14.4 billion cash and cash equivalents, and net cash per share is CNY 7.47. Gearing ratio, similar to that of last year, it's 16.3. ROE had been dropped to 6.5%. CapEx, it's CNY 1.3 billion. Also give you an annual guidance. For CapEx, it's about CNY 3 billion, and among which CNY 1 billion will be used for the development of AR, VR, and vehicle camera lens, and LiDAR, and some of the other emerging businesses. These CNY 3 billion also will be used for the capacity expansion of the vehicle lens sets. CNY 300 million will be used for the handset lens sets. We will also get prepared for the capacity building for our American customers. In total, it's about CNY 700 million, and another CNY 500 million is used for the handset camera modules used for the operation technology upgrade and the expansion of the capacity. Another CNY 500 million is used for the infrastructure construction, including the plants that will be built in Vietnam. In total, we expect the CapEx of the whole year to reach CNY 3 billion. On this slide, you can see the breakdown of the revenue. The biggest proportion is still related with the handset. The proportion have been dropped a little bit. Here you can see the three pie charts from 88.1% in 2020 to 79.9% last year to 75.2% this year. This is the majority. The proportion of the handset-related products have been reduced. Another big part is related with the vehicle, and it also varied from 5% and increased to 8.1%, and then to 10.2% this year. A third part is related with AR and VR products. In the first half of this year, it accounted for 3.9%, and it was 3% last year. Two years ago, it was only 0.6%. What I want to say is that after several years of the evolution, we have arrived at a more balanced level for the breakdown of the revenues. There is an obvious increase of the proportion of the AR/VR-related product. On this slide, you can see the gross profit margin. First, let's take a look at the consolidated gross profit margin. The reason for this change is very obvious. There are two main causes. The first is that the handset lens sets and handset camera modules had faced a de-spec trend in the first half of the year. Also because of the drop of the shipment, the scale effect and the effect of the scale economy cannot be fully tapped, especially for the handset lens sets, which is highly related with scale effect of the economy. Due to these two reasons, compared with the same period of the year, there has been a drop of 4.1% in the gross profit margin and reached 20.8%. In different segments, for the optical components, it was 35.5%, and the same period last year was 42.9%. For the optoelectronics, last year it was 14.8%, and in the first half of this year it's 11.6%. For the optical instrument, there was a slight increase from 44.2% to 44.6%. For the whole year, we would also like to share with you our expectations. Currently, we believe that first of all, in terms of the smartphones, especially the Android smartphones, and specifically for the domestic market, we haven't seen an obvious recovery of the market, and we are still facing the challenges. This is our first observation. The second observation is that in the vehicle-related products, with the shortage of the chips, and we have an alleviation of this challenge, and we believe that there will be certain recovery of the vehicle-related business. We believe that for the whole year, the gross profit margin of the handset lens sets will be reduced year-on-year. Our guidance is 30%-35% for the annual gross profit margin. For the vehicle lens sets, it's around 40%. For the handset camera modules, it's around 10% for the whole year. The total gross profit margin, we believe that there will be a drop in the year 2022, and we face a bit of distress here. This is about the gross profit margin, the total GPM and the segmented GPM. Next, let's take a look at the R&D. First of all, let's take a look at optical components. Let's first take a look at the smartphone related R&Ds. We had completed the 1-inch hybrid lens sets R&D. Also the R&D of the 200-megapixel ultra thin lens sets have been completed. We also had completed the R&D of the wide angle over 100 degrees front lens sets. On the right-hand side, you can see the mass production progress. First of all, the ultra thin miniaturized handset lens sets had entered into the mass production, mainly used for the foldable phones. There will be a trend for the upgrade for the cameras used for the foldable phones. Foldable phones have been very popular among the consumers, but right now the pixels and qualities of the lens are not so satisfying, and there is great potential for innovation and upgrade. In the first half of the year, we had to mass produce the very thin miniaturized handset lens sets. The second point is that the 200-megapixel ultra-large image size, 1/1.22-inch lens sets had entered into the mass production as well. Also the ultrawide-angle lens sets with two pieces of free-form lenses had entered into the mass production. These are the work done for the smartphone-related products. Next, let's introduce to you the vehicle-related product. The first, in terms of the R&D, we had focused on various 5-megapixel hybrid in-cabin monitoring lens sets R&D. The highlight here is DSM and OMS, the driver and occupancy monitoring system, have been integrated within one lens. Previously, we needed two lens sets, and one is for DSM, for the driver, and the other is for the OMS, for the occupancy. Now, the highlight is that we had been integrating these two lens into one. In terms of the mass production, we have done several things. The first is that a 3-megapixel hybrid side view ADAS lens sets for testing and sensing had entered into the mass production. Another point is that the 3-megapixel large aperture with an f-number of 1.6 hybrid surround view lens sets had entered into the mass production. Previously, we mainly used the glass for the manufacturing, but now we have been using the hybrid lens. The focus is to solve the problem of temperature excursion, and we can have to fix the focus. The temperature excursion is a big problem for fixed focus. The temperature excursion performance of the plastic is usually much worse than that of the glass. We really need to tackle that problem. The third one is about our emerging optics. First of all, that we have made a MicroLED-based projection lens for the AR optical engine, and some of our customers selected the solutions. On the right-hand side, in terms of mixed production, we can see that we have done a lot of new generation VR positioning lens sets, and mainly for better spatial orientation, better stability and accuracy. Also the VR Pancake modules, what people are focused about, is already rolling into mass production. Here on this slide, we're going to see our optical electronic products and to see what are the VUs doing here. First of all, let's take a look at smartphone-related in terms of R&D. First of all, we have the first in the industry, internal-focusing camera modules. We use a single lens in terms of not a whole module, but we move a single lens, and it's not taking a lot of space. It's been done within the lens itself, the first in the industry. We have successfully R&D this one, and the second is that we have a tunable OIS camera module. These are the two R&D highlights. In terms of mass production, here we have mainly done an ultra-large image size, 1/1.12-inch OIS camera modules. This is smartphone related. Next is about vehicle-related modules. First, in terms of R&D, we have an 8-megapixel A-PHY transmission technology modules. Because, you know, now we are using these chips and the chips that's connected to each other, it's very expensive. We don't have enough bandwidth. By using A-PHY, this new way of transmission, you know that we have cooperation with Valeo. By using these ways of transmission, the cost of the transmission line can be cut and the bandwidth can be increased. By doing so, no matter for OEM or Tier 1, this is a very good highlight. On one hand. On the other hand, we have made the 5-megapixel OMS modules to monitor the passengers. In terms of mass production, we have the 3-megapixel, 8-megapixel. All these high-megapixel now is for front ADAS to surrounding view. It's transitioning from view to sensing models. Also, we have the three new 8-megapixel sensing modules for external environment projects. Next is our robotic vision. In terms of our robotic vision in the R&D, we have two highlights here. One is that we have completed the R&D of the first generation standardized products of the AI modules. This is the MPU. For this MPU, after it's packaged, we will be patching on the main board. That's on the one hand. On the other hand, that is a mass production that is based on 3D visual module, based on ToF, and based on the structured light solution. This has been already applying to commercial robots, like street cleaner robots and so. We have the binocular solutions as well. No matter it's about 3D visuals or structured lights and so on, we have this very strong capability. This is for the robotic vision. Next, let's talk about our optical instruments. In terms of microscopes, we have done a pioneering job in China. One is that we have a mass production of the 25x flat field, two-photon excitation dedicated objectives. This is a very big breakthrough. Second, we have a mass production of near-infrared region two microscope in vivo imaging system. This is to be used in the field of life sciences. This is one of the pioneering jobs in China. This is for microscopes. Next, in terms of intelligent equipment, we have two things in terms of industry field. One is that we have completed the R&D and patent of wafer automated optic inspection equipment. This is an AOI system. We have sold two of these systems to our clients. Next is about our medical field. Through vision, through AI, we have a mass production of the cross-prototype automicroscopy scanner. By using machine vision, we have done all these jobs. All these are what we have already done in three different BUs, in the R&D and mass production. Here on this slide, we're going to demonstrate our patents. Till June thirtieth of 2022, 363 patents were added, and now the overall patent number is 3,334 patents. Within the newly added patents, 116 of them are invention patents. By the end of June, we have 4,064 patents now pending. There are still patents on the way to secure the security and safety of our business. Next, let's take a look at three of our main product lines. Probably next year, we're going to do some adjustments. One is these are the shipping volumes of our three main product lines. In terms of handset lens sets, we have a worldwide decrease, 9.1%. In terms of our 6P and above handsets, we have 20% of growth. This demonstrate that we have a better competitive in this product line. What you're focused about is that our overall situation. In terms of the overall situation, I think that the balance in our handset lens sets in 2022 compared to 2021, we have a worldwide decrease of 15%. Our next slide, this is about vehicle lens sets. Although that we have a supply chain disruption, but through all people's effort, our vehicle lens sets shipping volume have a 0.8% of increase. Now we have a 37 million of shipping amounts. As we mentioned that in the second half of the year, the interruption of the supply chain will now come into a better situation. This is going to be soft as well. Our overall guidance in vehicle lens sets can have a worldwide growth of 10%-15% growth in terms of shipping volume. That is for our vehicle lens sets. Here on this slide, this is our handset camera modules. The first half, we have a worldwide decrease of 20.1% in terms of shipping volume. We have 288 million of shipping volume. On our right-hand side, in terms of our periscopic modules, we have 56.2% of growth. Our core competitiveness is still competitive. Overall speaking, the shipping volume of handset camera modules will have a 20% decrease, overall speaking, for the year. That is our vision for our shipping volume for handset camera modules. Next, we'll briefly talk about our outlook for the future. First of all, let's take a look that although the smartphone industry is sluggish, however, we think that in the image function of these smartphones, there are still places for innovations, no matter for the leading companies in the world or China's Android brands and so on. In terms of R&D, people never stopped pursuing better image quality and functionality. We are helping our partners to achieve that. Overall speaking, although we have all these things, we have main cameras, ultra wide, telephotos, front cameras with all these different modules. We have two main opportunities. One is that large image size main camera, that's one inch, right? One image size main camera will probably use G+P hybrid solution. Second, we think it's a variable aperture. Because as you can see, the larger the image size has become, and it's going to need that different light scenarios, some higher, some smaller, and also the depth of field is going to be shift as well. Variable aperture is something that we need to use. The third direction, we think it's going to be OIS. OIS is going to shift because we have higher quality of the sensors. OIS will become a need. In terms of other fields like continuous changing of the zooms and so on, but we'll not go into very deep of that. You can just see that on the PPT. On the second slide, this is about the vehicle part. I'm not going to go deep in that because we all know about it. We have more and more cameras on our vehicles and LiDARs. We have growing numbers of them, AR HUD, smart beams, ground projections, and so on. All these will be equipped on our vehicles. We've demonstrated this picture a lot of times, so I'm not gonna talk about it. On the left-hand side is our vehicle camera related products. Here we have two scenarios. One is that the resolution is growing. We have 8 megapixels or even higher. What it brings us is a clearer view and a further view. That's the first direction. The second direction is the vehicle is running outside, right? One of its main job is that it needs to be able to defog and defrost. Self-cleaning. Defog, defrost, automatic heating and self-cleaning function. These are important because it helps us to see things very clearly. This is something that we're focusing. These are the main directions we're focusing, high resolution and self-cleaning functions. In terms of radar, this is what people are focusing about as well. In terms of the LiDAR, from this year on to 2025, from the LiDAR installation in vehicles will be increased, the amount will be increased. This is our own forecast and our own feeling for the future. What we want to reinforce is that our strategy in LiDAR. Now, Sunny in LiDAR, we are empowering all the LiDAR partners. We can help them to build their optical components, modules. Both can be done. Also we can finish their OEM job of the LiDARs. Within manufacturing, we will not be selecting what kind of solution is good in terms of NAND, machinery, 3D flash, all the trendy functions, solutions. These, we can all help our customers, help them to manufacture this OEM vendor, to empower all the LiDAR manufacturers. On the right-hand side, this is about AR HUD. This is important part for the infotainment in the central stack of the automotives. It helps you to also sense internal and external environment. Adoption rate of AR HUD had also been increased. For example, the PGU optical engines and the free form images and the OEMs of the AR HUD is within our capacity, and we're able to empower our partners in ecosystems. These are the three different parts related with the vehicle. As for the outlook, we hope that, with our efforts, the vehicle camera modules can reach CNY 1 billion revenue this year. Suppose we can reach this goal, CNY 1 billion revenue, then we believe that it will be a category that can be developed independently. In terms of the LiDAR, we are also doing very well right now. This year, we have three new designated projects. Accumulatively, if I remember it correctly, we already have 30 designated projects. On the right-hand side, the AR HUD. In the first half of the year, we have 12 new designated projects, and in total, we have 20 designated projects. There is a quick expansion of our business in those new businesses. We hope that, by the end of the year or the beginning of next year, we can give you more good news. These are about AR and VR business. You're very familiar with those products. On the left-hand side is the Fresnel and the pancake solutions. Of course, this is just an image showing you the concept. It's not something that had been launched. We're completely compliant, and it's not the exact form factor for the real product. It's just to show you the concept. In terms of sensing and interaction, there are more and more numbers of the cameras. I have counted that the number had reached 16. One is about spatial orientation and SLAM, and the other, which is also frequently used, is called see-through, especially the colorful see-through. VR is able to have great interactions and communications with the environment. See-through is critical. The other is gesture recognition. 6DoF tracking is very important as well. On the right-hand side, we also have the different categorizations, including the eyeball tracking and the facial tracking. Facial tracking is mainly used in avatar 3D models, and the expressions on the avatar will be well-recognized and tracked. I believe that these are products with great potential to grow in the future. This slide is about SmartEye. Long story short, we have been doing two main things. The first is the 3D visual NPU chips, and I had introduced that we already have the successful tape out, and it's now under shipment. The second job we have been doing is that based on the general SoC of the SmartEye. We're going to have the tape out soon as well. We hope that once we have the SoC, the smart AIoT solution can be better developed with our contribution, and we look forward to more progress and hopefully we can brief you more great news to you. Okay, thank you very much, Mr. Sun, for this presentation. Now let's start the Q&A. You can ask via voice or text. If you want to ask via voice, please press the Raise Hand button to wait in the queue. Once you are unmuted, you can start your question. If you need to ask via text, please click Q&A in the system and type in your question. First, let's welcome Mark. You have been unmuted. Please go ahead. Hello, management. Thank you very much for your presentation. I am from Citigroup. I'm Mark Li. I noticed that on your balance sheet, the prepayments for the machines have been increased by 80% in the first half, and I'd like to check, is it related with our customer in North America? In the future, what will be the direction for the expenses, and when do you think it will reach a peak? Hi, Mark. The prepayment includes the payment towards our customer in North America, but it's more than that. It's not only about the capacity expansion of the customer in North America, but also for the preparation for the other emerging businesses. The second part of the question is very difficult to answer because it is totally based on the development of our business, and probably it will be continuously increased. Just now, Mr. Sun had introduced to you the emerging optical businesses, including the AR and VR. We will have an expansion of the capacity, so it is also possible that the prepayment will be continuously increased. Okay, thank you for your answer. A follow-up question very quickly. What is the current capacity of the customer in North America? And also, just now, Mr. Sun had shared with us the development of the Android phone business, and I'd like to ask about, the development of the North American customer in August and September. First of all, regretfully, we have signed the agreement with the customers, and, we cannot give you a specific number of the detailed capacity. What we can tell you is that, this year we have entered into the second year for the mass production, and we now have more ongoing projects, and there are more projects in the pipeline. The shipment will be increased greatly compared with last year. Okay, thank you for the answer. Thank you, Mark. Next, let's welcome Chen Xudong. You have been unmuted. Please go ahead. Hello, management. My first question. Just now, Mr. Sun said that, the lens set shipment is negative for 15%, but in the first half it's about negative 9%. Does it mean that in the second half of the year, the shipment will be further deteriorated? What about the camera modules? I don't see that in your sharing there is a great drop. How to understand these differences. In terms of the balance sheet, the long-term debt had been categorized into a short-term payment. Does it mean that you want to reduce the gearing ratio? In terms of the expenses of the CNY 3 billion, do you think that it will be maintained in the longer term, and what will be the main direction? Thank you. Your first question is about the development of the guidance of the shipment for the handset lens set and the camera modules for the vehicles. The drop for both would be 15%-20%, and these are related with the macro development of the market. For these two types of the product, there is a difference in terms of the timeline, and they are not completely in sync, but they are both affected by the market. The second is about the American dollar debt, because it will reach the maturity in January last year. According to the requirement of accounting, it has to be transferred into the one-year maturity debt. We are considering about the coping mechanism, because as you know that, this year the market is a bit sluggish. Just now, according to the presentation of Mr. Sun, there are a lot of opportunities for the upgrade and optimization of the products and the businesses. Secondly, for both the lens sets and the camera modules, we are continuously diversifying our customers and having a more balanced division of different segments. To be more blunt, the share of Apple will be continuously increased. As for the camera modules, we are focusing on the high spec for Samsung products, and hopefully our market share in that customer will be increased, and we will have further development for the handset lens sets and camera modules in the coming years. We have the new tracks of AR and VR and some other emerging businesses. Maintaining sufficient finance is very important for us to be fully ready for the future development. Okay. Thank you. T hank you, Mr. Chen, for your question. Thank you for the management for your answer. Next let's welcome Andy Meng. You have been unmuted. Please go ahead. Thank you, moderator. Thank you management for your sharing. I have two questions. The first question is about the vehicle camera modules. First of all, I'd like to ask about, apart from the vehicle lens sets, putting together the LiDAR and HUD and some other vehicle related products, is there any changes for the guidance as compared with the one you released in March? Yesterday we also have seen that their outlook towards the third quarter is quite conservative. That NEV company is very conservative of their Q3 guidance. We had already released our guidance and for the camera modules. The whole year goal is CNY 1 billion revenue. I was the one who released this guidance to you in March. There is no change of the CNY 1 billion revenue goal for the vehicle camera modules. As for the vehicle lens sets, we also gave you a guidance that is about 10%-15% of the gross profit margin. For the LiDAR, we didn't provide a detailed MAM target. According to the situation of the designated projects, we believe that the expectation is the same as that in March. Now we have 30 designated projects, and I'd like to take this opportunity to make a clarification. These 30 designated projects include OEM optical components and optoelectronic modules, etc. In total, we have 30 designated projects, and we do not change our guidance compared with March. Okay. Thank you, Mr. Sun, for your answer. The second question is about the pancake solution in VR. Just now, Mr. Sun had mentioned we entered into the mass production of this module. Could you share with us what is the competitive edge of Sunny in pancake solution, and what is the competition for the industry? In the second half of the year, what will be the competition in the market and what will be the market share of Sunny? Okay. Around the world, the most leading VR company for pancake is designating their projects to us. This says something, and it is easy to understand, because we believe that there are two core capabilities in pancake solution. You definitely need a great optical expertise for dealing with the polarized lights, and we are an expert in optical solutions. For those who do not have such expertise, it's impossible for them to live up to the requirements. They also need some precision technologies like the alignment between two different modules and AA is also a strength of Sunny. Simply put, we have two highlights. The first is the AA capacity, the second is the optical expertise, and that is why we can win in this competition, and that is why the large C-companies are choosing us as their vendors. Okay. Thank you, Andy. Thank you, management. Next, let's welcome Huang Tianqi to ask the question. You have been unmuted. Please go ahead. Thank you very much, management, for your time. I have two questions. The first is about the plan for capacity expansion. Just now, Mr. Sun said that we would have the capacity expansion. I'm not sure whether there is any changes for the capacity plan for the handsets, lens sets, camera lens sets, vehicle lenses and vehicle camera modules. For this year, there had been a ferocious competition and some pricing wars for the lower spec handset lens sets. I'd like to understand about the pricing of the handset lens sets products of Sunny, and what is your outlook towards the future pricing for the handset lens sets? All right. To answer your first question is that in terms of capacity, the planning of the capacity comparing to the previous speaking, we don't have any change. In the past we have 180 KK, and we have a 10 KK of expansion, so by the end of the year we have 190 KK. The new capacity is for the North American client. That's in terms of our handset camera. In terms of our handset modules, the capacity doesn't change. In terms of the vehicle base, by the beginning of the year, it's 5 KK. After expansion, it will reach 8 KK by the end of the year. That's the capacity. In terms of the handset camera lenses, in the first half of the year, because the environment, the ASP YOY have a relatively high decrease, 10%-15% comparing to first half of the year. Comparing to the second half of the year, it's a slight decrease then. The second half of this year's ASP should be relatively stable. Thank you, Mr. Huang. All right. Thank you, management. Thank you, Mr. Huang. Thank you, management. Next, let's welcome Kina. Kina, you are unmuted. Please go ahead. Thank you, management. I have two questions. One is that I remember in June, in the Investor Day, that in terms of the smartphone industry, your company have a share in terms of the industry's outlook. You mentioned that the global smartphone should decrease, like, 8% decrease. In China, maybe 15%-16% decrease. On your guidance, what we're seeing is that the guidance have a relatively lower outlook to the industry. Is that because you want to secure the ASP or gross margin, so you are quite selective in the projects, so you tend to secure the market share on that perspective to ensure your profitability? Is that one of the reasons? We can see that in the first half of the year, in terms of ASP and margin, you are performing slightly better than the investors forecast for 6P and large image size. Is it because you're selective in the project, so you're performing better? I would just want to know the background when you're offering the guidance. In terms of ARVR, first half of the year, you have 11% of growth. For this year, the whole year, can you reach a 50% of growth like you shared? Can you reach that? You probably mentioned some adjustment that I missed, so can I know about that, please? Thank you. Let me answer that. First of all, during the Investor Day, we shared some of the data. Now for each month, our OEM companies, they are keep refreshing all these data. It's not that we want to secure the ASP and then we are throwing away some of the market shares. It's It's not like that. The statistics you heard in the Investor Day, we are keep renewing them. The OEM manufacturers are renewing them. What we are seeing is the situation is still very intense for the future. What we want to share with you is the latest situation. By holding the market share and cling on to R&D, this is our main course. The shift of the statistic in smartphones, especially in the Android, in the Android players, they're changing very fast. And second is right. For AR/VR, our guidance is 50%. It's still holding on to that. It's not. We're not changing that. 50% is our annual guidance for AR and VR. Thank you, Keena. Thank you, management. Next, let's welcome Tim Chang. You're now unmuted. Please go ahead. Hello, management. I have two questions. First one is about the vehicle lens price. One is, we're seeing some of the domestic clients, so the SP probably decrease. Also, in terms of the vehicle systems, they are now upgrading their parameters, so I don't know what's the situation gonna be like this year. Second is about our handset lens set, handset modules. For handset modules, we are seeing that our higher-end modules ratio have some increase. Also, we all know that in the module industry, there are some price war going on. I don't know what's the gross profit margin like right now. Can we have a bottom guidance for that? It's going to be a very great guidance for us. That's the two question. Thank you. In terms of the price, competition situation is gonna be more fierce, and it offer us some rooms for technology upgrade. One is like the sensing lens. The sensing capabilities like defrost and defog function, and also we have higher resolutions and so on. All these are pulling ASP going up. But the whole process, because we have a higher volume, like more than 70 million and so on. It's going to take us some time to increase the ASP. There are rooms there, but it's gonna happen gradually. In terms of first half of this year, our ASP compared to last year should be almost the same, maybe slightly increased. In terms of the second half of the year, compared to first half of the year, should be relatively stable. In terms of the major direction, the ASP should be slightly increased. That's in terms of the vehicle lens. Second, in terms of the modules gross profit margin, in terms of spec upgrades, we have already shared with you, if the competition situation in industry is the same, then I think that the handset modules should be 10%-12%. All right. Thank you. Thank you, management. Thank you, Tim. Thank you, management. Next, let's welcome Fu Tianzi. You're now unmuted. Please go ahead. All right. Thank you, management. A few questions. One, is that we're seeing the ASP decrease in the lens and the modules on the handset, probably de-spec or price competition. If you can rank the main reasons, how do you rank them? And also, for the second half of the year, how do you see the future in this part? Thank you. Well, you already mentioned. Why the ASP is decreasing, why the gross profit margin is decreasing. If you want to rank them, and it's really difficult for us to do that. In terms of my perspective, I think de-spec is one of the main reasons. That's one of the main reason. But it's, multiple reasons combining together that causes this, right? That's the first one. What's the second question? The second question is that in terms of de-spec and the capacity utilization and the competition in the industry, how do you see this in the second half of the year? In terms of de-spec. I think this is not a long-term issue. Now the volume of the smartphones is decreasing, but in terms of the camera modules, its functionality, there's still room for improvement. Just like Mr. Sun mentioned, our future forecast and guidance. The camera function in the handsets, there's still room for improvement. If we have that room, then for companies in the industry that have higher technology competitiveness, there should be opportunities for us. In terms of the GP margins and so on, there's still room for improvement. Okay. Thank you, Mr. Ye. Second is that we are seeing the first half of the camera lens sets and modules. We have a. For the higher specs, we can see the market share is increasing, right? How do you say about that? Overall speaking, it's de-speccing, but it doesn't mean that you don't have some high-spec stuff. The reason why we're expanding our capacities in that, this means that in the higher end modules, the competitiveness still increasing. At the same time, the overall volume, if it stays there or if it decrease, the higher ends takes a higher portion. That's the competitiveness that we're increasing. Okay. Thank you. Next, I would like to ask about the vehicle-based systems, because we're seeing the vehicle lens shipment is decreasing, right? Is it because of lack of the chips or is that the demand is just decreasing? The main trend, it stays there. We all think, we all have a consensus that in terms of the intelligent utilization of the vehicles is increasing, which means it will be increase the amount of lenses on the vehicles. In the first half of this year, due to the supply chain interruptions, that is the reason why this year, the first half of the year, we only have 0.8% of growth. In the second half of the year, we have 10%-15%, right? If we hit 15%, this means that our shipping volume should hit around 30% in order to achieve that. In the second half of the year, it should embrace a higher increase. For your LiDAR, AR, VR, HUD, all these emerging products, will they have some higher expectations than your guidance? For VR, we already talked about it for quite a few years. It takes some time to grow, right? Now this is the real market inflection we're seeing right now. We think that VR has potential. After VR, we have AR, right? AR is what people are talking about. In terms of commercialization, facing the market, it's still some time, I think, but we look forward for it. It's highly potential. We will be investing in this domain, keep investing in it. This is the reason why we have relatively high R&D expenses, because that we think that the future emerging deployment requires our investments like this. All right. Thank you. I don't have further question. Thank you, Tianzi. Thank you, management. Due to time limitations, now we are going to take the last question. Last question is for Frank. Frank, you're now unmuted. Please go ahead. Thank you, management, to give me this opportunity. Here I would like to ask two questions. One is about our LiDAR's competitive advantage, because we're seeing a lot of, You're taking a lot of projects. How would you comment on communications industries, competitors who are doing optical modules, optical modules and so on? What are your advantage and disadvantages? Also for your future projects next year, can you provide us some guidance in terms of how much of the income can you provide on this project? Because recently we know that in terms of the optical module situation, now we're thinking about some silicon photonics, especially in the IDCs. Now they are using the 400G packaging. After our research in terms of that new G packaging precision is higher than the traditional component makers or players in the industry. Their precision, according to my own understanding, they are lower than us. They're in a lower tier. I think we have higher competitiveness comparing to them. In terms of the light modules, that is for optic fiber systems like TOF, mechanical, and all these different solutions. We have a very obvious precision advantage in assembly, and the precision of the assembly of ours is very high. For example, the COB and AA, we had reached to the micron level or submicron level. In silicon photonics, they are also seeking for partnership with us. Maybe this is a superficial level understanding, but I'd like to introduce you our second advantage. All these are connected from the optical elements devices to prisms to assembly to AA and OEM. We have all of these capacities which makes us stand out compared to with other competitors. Most importantly, we do not have a direct competition with the LiDAR manufacturers. Instead, we are empowering them. If they have certain advantages in certain aspects, we can empower them and support them to develop those businesses. This is the question. This is the answer for your question. Okay. My second question is that you talked about the high-resolution interface chip module, actually. As for the technology, can you give us more instructions? Because we usually use MIPI or LVDS, and how are we using the different technologies compared with them and do we have the designated projects? Well, actually, you're very professional. We have the MIPI signal, but the distance is very short for MIPI, and it is a bit distant from MCU, and this is a very complicated process. Then we need to transmit the signal, and the SerDes chip is required. This is actually an upgrade of MIPI. We already have the standard now, and this is an upgrade of the MIPI. This is the first thing. The first step is not to solve the issue of the chip. Instead, what we need to do is to lower the cost, because we have some Japanese manufacturers manufacture very expensive cables, but now we can use another type of cable to transmit, and therefore we can lower the cost. In the vehicles, the cost can be greatly reduced. The second step is that we need to think about, maybe we no longer need the MIPI to transfer the RDPS signals. Maybe we no longer need such transference of the signals. There are some large companies working with us through the designated projects, and you can check more information about it. It's a really basic company called Valens, and a lot of OEM companies are interested in this company because the their chip is very expensive, the cable is expensive as well, and the bandwidth can also be increased while lowering the cost of the cables. This is very appealing to the players. We should not say that we already have the designated projects, but what we can say is that we have been promoting these businesses with a lot of the partners, and I hope that in the second half of the year or in the beginning of next year, we can have clearer results. Am I clear, and have I clearly answered your question? Yes. Okay. Thank you, management. In the interest of time, we cannot cover all of the questions from the investors. If you have more questions, we welcome you to contact our IR department. Thank you for your understanding. This is the end of the Sunny Optical 2022 interim results announcement. Thank you again for your participation.