Sunny Optical Technology (Group) Company Limited (2382) Earnings Call Transcript & Summary

Distinguished investors, good morning, and welcome to the 2021 Interim Results Announcement of Sunny Optical Technology Group. I'm [ Daisy ] from Investor relation. On behalf of our company, I would like to take this opportunity to thank you for your long-term support. Being influenced by the pandemic, this announcement will be conducted via online platform. Sorry for the inconvenience. First of all, please allow me to introduce our management present in today's event. They are Executive Director and Chairman of the company, Mr. Ye Liaoning; Executive Director and CEO, Mr. Sun Yang; Vice President and Joint Company Secretary, Mr. Ma Jianfeng; and also in our Hong Kong venue, IR Director and Joint Company Secretary, Madam Wong Pui Ling; Associate IR Director, Madam Liu Yanfeng. Next, we'll present to you our annual results in the presentation that has been uploaded to our official site. Please feel free to download it. Now let's welcome Executive Director and Chairman, Mr. Sun Yang to review the 2021 interim results. Now let's welcome Mr. Sun.

Okay. Thank you to investors for your participation. Due to the pandemic, just like last year, we will conduct this event via online video conference. Now I'd like to brief you Sunny Optical Tech 2021 first half operation situation. Now let's take a look at our revenue. So in the first half of the year, we have CNY 19.8 billion, and that is a 5.1% up. So that is a much so easy increase of the performance. And that is because in different terminals of our handsets has an increase in the market share and also for intelligent driving, EVs, all these industry, their demands towards the sensors has been expanding. And yes, in between, we have some fluctuations in terms of the chips. But these are 2 of the main driving forces, and we still created 5.1% of revenue increase. Now let's take a look at gross profit. We have 34.5% of growth in first half of the year. We have got CNY 4.9 billion in this part. So as you can see, the gross profit growth speed is a lot faster than our revenue. That is because our handset unit BU -- handset camera unit BU in the first half of the year, they have been improving their manufacturing technology, manufacturing process and the further increase the establishments of the construction of the supply chain. And that has been pulling our group's gross profit into a higher standard. And on the third part, we can see the profit before tax that is CNY 3.2 billion, and that is a 52.1% of growth. So our effective tax rate invest in first -- so it's kind of same comparing to the first half of 2020. And for the profit for the period attributable to owners of the company, that is 53.7%. Earning per share is 53.9% of growth. So that is our basic situation in our revenues and our expenditures. And in terms of the expenditures or the expenses, our operating expenses is kind of close to last year, that is 9.4%. So now, as you can see, selling and distribution expenses and administration expenses maintaining approximately to the same level. However, if you look at the R&D expenditure, we have 1% of increase in that. So here, except for the continuous investments in our lens and sets and so on, we have been investing more in our vehicle-boarded cameras and LiDARs, HUDs, smart headlights and so on. These -- we have more increase in investments in these parts. And in the second part also that in AR/VR, we have been investing more as well. Because in this new business, we are investing more, and that is the reason why we have 1% of increase in the R&D expenditure. We're investing for the future. And next, let's take a look at a few more index here. For current ratio, we have -- it's now 1.8 as such. And the operating cash flow is CNY 2.3 billion. That is pretty good. In terms of our cash, we have CNY 11 billion. Our net per share now is CNY 5.34. And the gearing ratio has been further decreased down to 16.4%. The ROE increased 1.6% and now reaches 14.6%. For our CapEx, it is now CNY 1 billion. So it's kind of maintaining what we mentioned in the beginning of the year. So I'm not going to repeat it. So here in this slide, you probably look at this quite often, that is the final product of the company, their application in these few domains. The largest part is still highly related to our handset units. In first half of the year, it takes 80% of our revenue and Y-o-Y was 88%. So what can be more happy about is they can see the -- in a lighter yellow, there's a product related to vehicle, and it increased from 5% to 8%. That indicates the vehicle-related products now has become a second growing pillar of our group. So in this part, it's about the GP margins. Now let's take a look of the overall situation. In first half of this year was 24.9%. It is a 5.4% of growth Y-o-Y. Now if we take a look at the Optical Components, we have 1.4% of growth, now reaches 24.9% (sic) [ 42.9% ]. For our optical electronic products, we have 3.7% of growth, which hits 14.8%. In terms of Optical Instruments, it's up by 5.6%, now hits 44.2%. So we can say that in the first half of the year, these 3 main pillars are improving in terms of their GP margin. Due to the first half of last year, it's influenced by the pandemic. It's still influencing this. But overall speaking, in the second half of the year, smartphones, in terms of the downgrade of the parameters, we're not seeing a stamp of that trend. Well, in the second half of this year, that probably will be the trend to beat. So we do feel that pressure. And so we're all speaking through our effort. Of the overall year in 2021, our overall GP margin through our own efforts, hopefully that we can have a better increase comparing to 2020. So long-term wise, next year or the year after next year, no matter it's about the smartphones or vehicle-boarded cameras, lenses and so on, the upgrade of these equipments, that is a certain trend. And we do believe and we do hope that through our effort, we can increase the GP margin. So that's all about the GP margin. So here in this slide, let's take a look at this one. These are some of our breakthroughs in R&D. Now let's take a look at the Optical Components. This is a BU. And so now this is smartphone-related R&D. R&D completed in this domain. First, this is a tunable curvature lenses. So it's kind of like a liquid lens, we call them T lens. So this is for front camera, fast focus technology, and we've completed our R&D in this part. And so one of the completed or the second one is we have a super-wide or ultra-wide angle lens, we've completed that R&D. And third is what everyone cares is our Hybrid GM+P large image size lens set, and this is the application for main cameras. We've completed the R&D for this one as well. On the right-hand side, now these are the technologies that are already now in mass production phase. So first of all is the 3 millimeter ultra-macro shooting lens set. This can be updated in -- on our smartphones, and we can use this as a microscope. So this is a pretty niche market. And second one is that we've completed the 10x periscope telephoto lens set with pure-plastic lenses, and this is now under mass production. We're the first one in the industry, and these are related to our smartphones. And second is related to vehicle. So in this part, first of all, we have finished something based on NVIDIA platform that is 8-megapixel autonomous driving lens set. And in the future, the NVIDIA platform will become even more significant than the levels of self-driving vehicles increase. And so we'll have more cooperations with them. So 8-megapixel is a project we finished this year. And also, we've got other projects already went through NVIDIA's certification. So also, we have the OMS -- or a DMS 5 megapixel hybrid in-cabin lens set. For this one, we've completed R&D as well. So the third part is our HUD. The HUD we've completed here is AR HUD, and it's based on the DLP solution. The R&D for this one has been completed as well. On the right-hand side, already now in mass production phase, we've got 3 items for this one. It's all about LiDAR. So we've got the transmitter and receiver modules is all under mass production. And also the window outside the LiDAR itself is now under mass production as well. And also, we have got the polygonal prisms. We have already put this under mass production as well. So for the final one, let's take a look at our AR technology. So for AR 3-color waveguides were completed, our R&D, and then as well. And also for the next one is our VR optical module. What's that about? So that's that in virtual reality. So we have finished the R&D for the assembly for the improvement distortion of the chromatic aberration. So these are the R&D milestones we have achieved in the Optical Components BU. So next one is our Optoelectronic Products. First of all, we'll talk about something related to smartphone. For the first one, we have this something quite like T lens is a camera module with tunable cover lenses. This is a component that has been [indiscernible] in with the lens. So it's going to be replacing the traditional VCM. And the next one is that we are going to -- we've already completed a 3x to 8x continuous zoom camera modules. The next one is that we'll be doing the dual OIS camera. So for this sensor shift and lens shift, we'll be combining them together to do a dual OIS. That's the first one in the industry. That's the R&D. On the right-hand side, the first one is the 10x optical zoom periscope camera modules, we all know this. And second, we are the leading one in the industry as well, that is our gimbal stabilization camera modules with ultra-wide angle. We've completed this to enter this to mass production. And third one is a free-form camera modules, including ultra-wide angle and low distortion. Next bunch is related with the vehicles. On the left-hand side, you can see that we had carried out the in-depth visual ranging modules based on the OMS and [ DUS ]. We have the RGB and ToF combined solutions. We are able to view the 2D images and also the 3D images, so that [indiscernible] movement identification will be based on it. And the second one, it seems to be not so obvious, but we have the low-cost miniaturized exterior viewing modules. We hope that in the future, the scale can be more and more miniaturized and will not be visible if you embed it in the vehicles. So we are also saving the cost. So it is very challenging as we had to finish this kind of R&D in the first half. And on the right-hand side, you can see what are the things that had entered into the mass production. The first is that we are very proud to be the first supplier in the industry to be able to deliver the 8M and front-view sensing modules. And also we have the DMS modules and OMS modules enter into the mass production. And the last, but not least bunch is the other applications. First is that based on the ToF and structured light technologies, we have the facial recognition plus in vivo recognition technology. And it's mainly used in the facial scan payment. And we had completed this R&D. And on the right-hand side, you can see the items that have entered into the mass production. The first is the AR/VR. Especially in all-glass projects, we have a very large market share, and we had been making a lot of progress on that. And also in the sweeping robots, we not only have the ToF hardware, but also we have the feeder wave processes combined with algorithms. We had products into the SDK to enable the easier development for the customers. And in the future, we may expand it further from SDK to chips. In terms of the Optical Instruments, I will very quickly go through it with you. On the left-hand side, the R&D completed items. The first is the prism appearance inspection equipment; the second, the vehicle plane glass inspection equipment; and the third one is the achromatic objective project. We have achromatic object. And on the right-hand side, you can see the production in a mass scale. The first is the wafer fragment inspection equipment. The second is the real-time focusing microscopic system. And the third is the upright near-infrared region-II motorized fluorescence microscope in vivo imaging system. So that we can go further taps in viewing the in vivo samples. So next, it's also related with the R&D. Let's take a look at the patents we have. And by the first half of this year, the granted patents had reached 2,488, increased by 392 compared with last year, among which 185 are the patent of inventions. And these are the granted patents by the first half of the year. But actually, we also have 3,612 patents in pending. We mainly focus on the sensing modules, AR/VR, robot vision and some of the other fields. This is about our patents. On this slide, let's talk about several -- main production lines about their shipments and the future outlook. The first is the shipment volume of the handset lens sets. In the first half of this year, we have about 717 million, increase by 11.1%. And we made another statistics for lens sets over 6P, we have 163 million. So we believe that it is a very large quantity. And in the second half of the year or throughout the whole year, we also have a guidance. And this is based on the actual result in the first half and the full year shipment for handset lens set compared with 2020 will be increased by 5% to 10%. And this is the full year guidance for the shipment of handset lens sets. On this slide, let's take a look at the vehicle lens sets. And we have a very robust recovery in the first half because the baseline of last year, it was relatively low. And we had it grow by 82%, reaching 37,317. And also, I'd like to provide you with a full year guidance of the shipment for vehicle lens sets. We believe that in 2021 compared with 2020, we will hit 30% to 35% growth year-on-year. On this slide, this is about our camera modules. On the left-hand side, you can see the total values in the first half, we have 360 million, grew by 34.5%. On the right-hand side, we had been updating those figures. We believe that it will give us a better added value such as the large image size or the periscopic ones. And there was a drop of 21% year-on-year. And throughout the whole year, the total guidance for the full year shipment was 20% to 25% growth year-on-year. And I'll skip this slide. You have visited our new production bases, and it is going very smoothly. In India and Vietnam, we are also having very steady progresses there. And the last part is our outlook. So maybe I'm not reading the PPT for you. I'll just share with you some of the highlights. The first is about the smartphone. We believe that upgrade is a definite trend. Maybe it will happen next year or the year after next year. And we will focus on the large image size and also the hybrid materials, glass plus plastics, and also sensor shift. And the fourth part is the continuous zooming. And we have made a lot of R&D investment on all of these fields. And once we have an up-spec trend, we will definitely take a very advantageous position. And this is the first main information delivered to you. And the second one may be much concerned by you is the situation of the American company. And we are very happy to tell you that, that American company is very happy with our offering and the progress is beyond our expectations. So this is about the smartphone products. And on the next slide is about the product related with the vehicles. And I can brief you the overall situation and some of the achievements we had been making. First, the 8-megapixel front-view ADAS vehicle modules. In the first half of the year, we had the first mass production solution in industry. And in the second half, we will have 3 mass production solutions and also design one already have 10 different modules. And in China, we had covered almost all of the 8-megapixel front-view ADAS. And the second part is the LiDAR optical system. In design one, we already have 10 LiDAR solutions, and we had covered almost all of the top players. And this is about the vehicle camera modules. And the last slide is about our smart eye [ AIoT ]. And we are very pleased to tell you that in the second half of the year, based on the 22-nanometer processing, we will have an SoC used on some of the AIoT production lines. And we cannot offer you more details at the current moment. But definitely, we will have the 22-nanometer [ SOT ] and to have the actual smart eye completed. And this is our coverage in smart eye, smartphones and vehicle-related products as well as the [ SOT ]. Thank you for your patience.

Thank you very much, Mr. Sun, for your presentation. And now we will enter into the Q&A session, and you can ask them via voice or text. [Operator Instructions] Let's invite the first investor, Kyna Wong.

Congratulations on a great performance. I have 2 questions. The first is related with the vehicle business because we sense that the investors also pay a lot of attention to the vehicle and fast development, especially on the changes of the price. And we'd like to know about the factors influencing the price changes? Is it about different customers or different types of the products or any other reasons, for example, from the supply chains or from any other variables of the product? Why we have a different ASP? This is my first question. And the second question is also related with the vehicle business because in outlook, we have the 8-megapixel front-view lens. We will have more and more shipments of that part of the products. And we also have some progress in the mass productions of the LiDAR. And apart from the vehicle lens sets, what is our forecast for the future development? And another question is related with the handset lens sets. I'd like to know more about the price in the first half of the year? And what will be the outlook for the second half of the year?

Let me answer the first question. We have the vehicle-related products sessions in these slides and before we used the vehicle lens sets. Why we have such a change in the presentation of Mr. Sun, he already had mentioned that because in the production lines, industrial lines of the vehicle business, it has become the second growth engine for Sunny Optical Technology Group. And also, we have made sufficient preparations for these pipelines, and maybe we will put together those products and then have a breakdown. This is a more reasonable practice. And we have the vehicle lens set. We also have the vehicle modules. We also have HUD, smart eyes, et cetera and also have the LiDARs. And about the infrared vehicle lens, that's -- we also have included that into the vehicle-related products. And in the first half, the ASP is actually very stable and the biggest pressure comes from the appreciation of RMB compared with the same period last year. And if I had to remember if that's correct, the foreign exchange rate last year was about 7% and in the first half of this year was about 6.4% to 6.5%. And there was a growth of about 7% to 8%. So in terms of the U.S. dollars, it's quite stable, and even there is a slight increase. And this is about your first question. The second question is about the handset lens sets. The ASP of the handset lens sets impacted by the epidemic, there was [indiscernible] situation in industry. And there was a drop of single digit. And throughout the whole year, we hope that the second half ASP compared with the first half of this year, it can be more stabilized. But still we are pressured.

Next, let's welcome Andy Meng.

I also have 2 questions. The first is that we have noticed that in July, the shipment of the vehicle lens sets had a slight drop, and it is because of the chip variations in the downstream. And can you give us a quantified situation introduction of the vehicle lens sets? What will be the normal shipment of the vehicle lens sets? And in the future, what is the growth logic? Is there any changes of that? And then the second question is about the handsets lens sets. We had analysis that in handsets lens set and the modules, there is increase, the percentage of the products provided to our own group. And does that affect our GP margins for the Opticoelectronic Products? And will it also have an effect on the GP margins of the Optical Components?

So for your first question, in terms of the vehicle lens sets, in terms of the shipment for the guidance, actually, I mentioned that. So in terms of the annual view, it's around 30% to 35% growth. As we're seeing in the industry, the making of chips, we are seeing that as well. But we do think that the shipments will increase because sensors boarded on vehicles, the amount of that is increasing. No matter it's visual sensors or LiDAR sensors, they're all using that. So for the future -- for the coming years, it is a high percentage, a high possibility that the shipping amount will be increased. So in terms of guidance that we offer this year, this is a result after we made communications with our customers, clients. But overall speaking, we do have an estimation of that between 30% to 35% because in terms of vehicle lens sets, we are #1 in the world. And that's pretty -- that's quite -- we do have quite a lot of space over here. So we're looking at speeding up at this point, and the penetration rate is increasing. That's the answer for your first question. As for your second question in terms of the handsets lens sets and lenses, your self-supply, actually you are putting more focus than I do. Because we are not calculating the self-supply right now. Because 2 of the BUs are all based on the marketing mechanism, we're operating on that. So for self-supply, if it increased in that, do we have an improvement in GP margin? Well, actually, it's not related. It's all based on the demand of the customers to make the best modules and components for them. So that's the situation.

And next, let's welcome the next question, [indiscernible].

I've got 2 questions here. First one is about the handset because we're seeing the first half business in the handset unit, your revenue is decreasing. That's the first time I'm seeing this for many years is -- I think is actually shifting down. So I would like to know your view, Mr. Sun, Mr. Ma for the future growth of your smartphone business over here. Because we're seeing the amount of your handset business is pretty stable. And also for the downgrade trend is pretty stable as well. So what do you think about the future of this domain? Is it going to be stable as well? That's the first question. And for the second question, just like Mr. Sun mentioned, AI technology, how do you view it? Because you mentioned the market share is leading in this domain because your AI product is still relatively early in terms of the competing landscape because we're still waiting for -- probably in the market, there will be the competitors releasing new products. So how do we view ourselves? What is our competitiveness and advantage in that part?

Well, I mentioned it just a bit. So I would like to clear it out. First of all, in terms of the handset lens sets, in terms of the HLS, [indiscernible] the market share of our company or revenue of our company, we do all think that there are rooms of improvement. We will not just stop here -- not stop here at the number of the figures you mentioned. And it's pretty simple because in terms of market share, the company from the U.S., their market share is increasing. So for [indiscernible] the market share is increasing. So that's one thing. And second is that this year for the downgrade -- because of the downgrade trend, the price is not optimum. But in terms of our T lens, continuous, zoom switches and so on, all -- well, the price is going to increase. And if that increase, the amount will increase as well. And so the revenue will increase. That's the answer for that. And second, in terms of AR/VR, let me just pull them together. What we [indiscernible] in the VR product, including the cameras, lenses, so -- because the players in this product -- the main player is Oculus, and we're taking a big portions in that. So here, just like you mentioned, this is an early stage. The industry is in its early stage. But in this early stage, we've already gained the top player. And within the top players, we are taking its main share in its optical system. So that's the reason why I'm putting the words like this. We are leading in VR. Well, we are leading in AR as well, we can put it that way. Because in China, there are only a few players like us that can achieve the technology we have right now. And for the first half of the year, we already finished those technologies' R&D and some of them are even under mass production. So that will be my answer.

And next -- let's take the next question, Tony Zhang.

I've got 2 questions. First of all, for the handset lens set, we are seeing some price pressure in the first half of the year. But in terms of the optical units, we -- our GP margins, we have -- will be increasing as well. Can you explain why can we achieve that? And also for 3D ToF and SDK, we're trying to make chips. So what's your thoughts and your positioning on the chip manufacturing. So in terms of equipment, in semiconductor, we do have a replacement for overseas equipment for the semiconductors, right? And I would like to know what's the function of those equipment.

So first of all, in terms of the HLS, the Optical Components GP margin increase, the reason of that is pretty simple, that is, in the first half of the year, internally, we are making some management and administration improvements. That's the core reason why our GP margin can have an increase in rolling comparison. So second, in terms of the SoC, I would like to make an explanation. The thought behind that is pretty simple. Because in AIoT, it's a scattered -- shattered market. And so the plant is in its different levels. So if we just give them tough hardware like that, in terms of the ISV and other merging of the information and so on, it's actually quite complicated. So the thoughts behind those is that we are going to make an R&D of the SoC. Then they would be unstructured. We have got boosters as well. And also, we have got course for 3D processing. It is the first time that we're doing it with our collaborators. Because our collaborator, they've already got their experience in SoC and they've got a lot of patent. So we are not just started on our own in fresh hands, but we do have alliance with that. And also we've done the market research, done the study in comparison. So hardware plus chip plus algorithm, this solution to the lending of specific IoTs will be pretty helpful. Currently, in terms of our market research, that's what we receive. But can we really make this a blockbuster hit in the market and be welcomed by our clients? That probably need to be reviewed by time. But hardware plus chip plus algorithm to form the smart eye will be the direction of Sunny Optical Tech, all right?

Let's take the next question [indiscernible].

Two questions. So first one is, if we see the revenue and profit in terms of the quarter, do we have any change in that? And second is related to handset units. We've got 2 questions here. One is that we have pretty high margin in the modules. Do you think that this will become the new norm? And second is that in your U.S. client, what's your estimation of your profitability comparing to the HLS?

Your first question in terms of the time for the profit, the major influence of that is because of the pandemic instead of the high/low season. Second, in terms of the camera module, GP margin in the past few years, through our internal efforts, we are increasing our own GP margin. Speaking from this year, we are doing pretty good in the first half. But for the second half of the year, because of the downgrade trend, we do reckon that we are under pressure in terms of our annual goal. We do want to outperform our last year's performance. And for the new -- after the new technology was introduced -- is introduced, based on our optimization for our management system, hopefully, we can reach a better GP margin in that as well. So basically speaking, we need to follow the market trend. And by doing so, we need to improve our internal management. But yes, we -- that is pretty pressurized as well. In terms of the GP margin of our North American client, in terms of that, don't just look at that, don't just look at single client. Look at the overall situation of our HLS. During our cooperation with our clients, what we need to care is do we win positive comments from our clients. That's pretty significant, currently speaking. So a good -- by offering a good product structure, we do believe that we can have better GP margin performance.

Let's take the next question from [indiscernible].

All right. In terms of your LiDAR, your AR/VR and vehicle-boarded components, you've got R&Ds being -- performing pretty good, and some of them are under mass production. We do think that the market is pretty interested to see all of this. And also, it provides a good growth to the company. But in terms of the upgrade of the handset, I would like to continue your question. In terms of the downtrend, that's influencing the first half and second half of our ASP. But at the same time, it also indicates that next year, there's a hope for the huge increase for the GPM rate. And why is that, that this year, we're seeing a downgrade. And next year, we're probably seeing an upgrade of these smartphones. Why is that? What's the logic behind that? And also for Mr. Sun, in terms of the handset lens sets, the ASP in the second half of this year, what would be the trend of that?

First of all, the judgment behind that is -- what I mentioned is actually next or the year after next, we are seeing that trend. It's actually pretty easy to understand because when we are making exchanges with the R&D department of our clients and [indiscernible] double OIS, continuous focusing or zoom changing, they have different focus in our different clients, but people are making their own judgments, right? What I'd like to say is these judgments, these new parameters, new process will definitely be used in their new products, new cell phones. But is it going to be next year? Is it going to be the year after next one? That depends on them. But after making exchange with the R&D department, we do feel that trend. So -- well, for the first half of the year, we're doing like this. So for the second half of the year, can we increase the efficiency? Can we improve the cost and so on? All these things are from our clients. But some of these words are from their R&D. Some of their words from procurement or market department. So I think this will be quite easy -- this is actually quite easy to understand. If the upgrade is significant, the increase of GP margin is just a result of that, a pretty natural result of that. So what's your other question?

About ASP and GP margin in the second half of the year and outlook towards the next year.

Actually, Mr. Sun had emphasized on the GP margin already. And already, we have a backdrop of the [indiscernible]. And we had been pressured, but our goal for the whole year compared with 2020, we hope that with our efforts, it can be stabilized and improved. And about ASP of the handsets lens sets and the camera modules, actually, we already answered the question for handset lens sets. We had been pressured, but we hope to stabilize it compared with the first half. And for the modules, there is some special situation. The first is the performance of ASP. And compared with same period last year, there was a drop, and it was a very obvious 2 digit drop. But I remember that in March this year, we already provided you a guideline. Our goal of ASP compares with the second half of the year. We want to stabilize it. We already had realized that goal. But the biggest difference is, let me repeat, our biggest customer started from Q4 last year. There was a big drop of the market share, and that has a big impact on camera module and the product structure of that biggest customer is also optimal. So for us, Q3 and Q4 last year, there was a big change of ASP. And what we had been benchmarking is that the second half of last year ASP. So compared with Q4 last year, there was an improvement, but the customer structure of last year and this year, there is a big change as well. In the first half of this year, we had very successfully digested those kind of negative impact. And our goal is to maintain -- stabilize the situation of the first half of the year, and we will also improve the performance compared with Q4 last year. And this is the current expectations. And as for the longer-term expectations, you can go back to what Mr. Sun had answered that the better products will bring about the more satisfying ASP.

Now Mr. [indiscernible], you are unmuted.

I have 2 small questions. The first is about the GP margin of the handset modules. In the first half of the year, there was a good growth. And you also mentioned the changes of the customer structures, and there is an increase proportion of our Korean customers. Can we understand it that way? In the future, once there is a bigger proportion of the module businesses, then will that contribute to a better margin compared to the domestic model?

About the ASP structure of modules and GPM, right? All right. So this year, we are very clear about the issues of the GP margins this year. This is mainly related with the whole market and with the adjustment of our customer structures. And as time goes by, we have been increasing the shares of the new customers, and also, we will update the specifications of the modules in the future. And with these 2 factors, I believe that the ASP will be improved for sure. And also, it will help the improvement of the GP margin, and the manufacturing systems with our efforts over the past few years will also be great. And we have a great production process and automated processes and better yield. All of these has been improved. And putting these factors together, we are very confident to improve the GP margin.

And my second question is about the vehicle camera modules. We mentioned that the 8-megapixel front view modules already have won the bidding of some projects. And for that project, based on the existing vehicle modules, we will further upgrade the offerings. And what is our advantages in the 8-megapixel modules? And what is our positioning in the Tier 1?

So we can take a look at this issue from 2 perspectives. The first is the increased penetration rates of ADAS. This is a bigger pool for us. It means we had been facing a quick surge of the demand. And previously, we had been developing the vehicle modules, but there are some emerging players. And those emerging needs have a very clear requirement, and we do have the capabilities that can flexibly and agilely meet their needs. And this is a huge market potential for us. And with the increasement of the penetration rate, we still see further release of the capacities of existing suppliers. And as for us, we do have the big background and expertise in this industry, and the customers are very willing to collaborate with us. That's why I say we had been facing very promising market opportunities. And we do -- have seen the bigger demand from the market. And we have a lot of customers, some come from the Tier 1s, some are the emerging new players. They will gradually become our customers.

And next, let's welcome [ Jacob Lee ]. Maybe the connection is poor. Let's switch to the next investor, Cherry Ma.

I have several questions to ask. The first, the R&D completion slide, you mentioned about the VR optical module, and there is a big customer in America. And are you making these R&Ds in preparation for that customer? And in display assembly under the existing ODM, what are the differences? And why do we need to make such a combination is my first question.

Okay. This is a very professional question. And the first question -- can you repeat that? Sorry.

Okay. You mentioned that we had been developing the VR optical modules.

Okay.

In VR, we had been making some new R&D in preparation for the next-generation products.

Yes, you're right. And the second question, from the professionals perspective, we can use the fresnel lens or the aspherical lens plus some of the IT solution. This is very complicated for the automatic alignment. We have to have very deep understanding of the optical systems. And all of these are based on our expertise in optical industries. And for our customers, they also believe that a screen plus the lens will be regarded as a big module, and then we can deliver it to the other OEM. And then for the whole VR systems, we will improve the yields and reliability. So this is a very natural selection for us. And this is also based on own expertise in the optical industries, and we had gained this customer and the business with our own expertise.

Okay. The second question is that we will have AIoT chipsets. And for these chipsets, is it a platform-based one, or is this customized for certain products?

Well, because we are the first company who can develop such a chip, so theoretically, in a very special specific area with a large quantity, then we will focus on the ASIC in terms of efficiency and economic considerations. And maybe the customers will also add together some of their own algorithms. So the first product we have is an SoC platform. And in the future, once we have a very special application scenario with a large quantity, then we can develop ASIC with certain customized functions. So we believe that our current strategy is very appropriate because if we directly go to the ASIC, maybe we want to have a deep understanding of certain application scenarios.

Okay. My third question is about OpEx, Mr. Ma. And before we mentioned, the goal was 8% to 8.5%. And in the first half, we had -- go beyond that target. And what about second half of the year?

Okay. The answer is that we will increasingly invest in the OpEx, and it will be maintained between 8% to 9%.

Okay. Sorry, I have a lot of questions. The next one is the vehicle-related product. We have 8%. And handset-related products is 80%. And can you share with us the proportion of the lens sets?

Maybe you can have a calculation yourself, all right?

Due to the interest of the time, we will invite the last investor to ask the question, Frank He.

I have a small question related with waveguide products deployment. And can you share with us the fact of waveguide, do we have some special patents or do we have something differentiated from our peers? Because for DOE, we may use some semiconductor processing solutions. And I'm not sure in a vertical integration, to what extent had we developed to [indiscernible] we developed? Can you give us more information about that?

And in the AR optical waveguide, we had been going towards the directions. The first is to learn from the best players such as -- so we need to learn from the big players. And also the second is to have some special strength such as the development software of the optical waveguide. And together with the big players leading in industries, we had been developing that software and also the expertise of this. But what I can tell you is that we need to do 2 things. The first is to learn from advantageous players and to learn the lessons from their practices. And the second is to set up our know-how and our own advantages such as the development software I had mentioned to you. And in a semiconductor optical industries, we had made a lot of investments. We didn't purchase [ EVU and DVU ], as you know. And the whole process, it's very complicated. And as for [ RBIE ], we will continue to acquire -- buy those equipments, and we do have a heavy investment on that. So this is about the semiconductor processing.

And I have a follow-up question. Next year, will we expect some revenues from the electric waveguide, or is it uncertain?

The [indiscernible] for the R&D manufacturing process and the manufacturing capability of the template and also for the semiconductor equipment to utilize everything actually require a lot of time for the team already.

Due to limited time, we cannot answer all the questions from investors. So if you've got any questions, please do contact with the IR team. Thanks for your understanding. Ladies and gentlemen, this is the end of the Sunny Optical 2021 results announcement. Thank you. Thank you again for your participation in interim results announcement. [Statements in English on this transcript were spoken by an interpreter present on the live call.]