Sunny Optical Technology Group Co Ltd

HKEX:2382

Earnings Call Transcript 2022-Q4

[Unidentified Company Representative]

Good morning. Welcome to Sunny Optical Technology's 2022 Annual Results Investor Presentation. Thank you very much for your support and attention to the company.

I would like to introduce the management of today's meeting. We have Mr. Ye Liaoning, the Executive Director and Chairman; Mr. Sun Yang, Executive Director and CEO; Mr. Ma Jianfeng, Vice President and Joint Company Secretary; Ms. Jasmine Wong, Senior IR Director and Joint Company Secretary; Ms. Christina Liu, IR Director.

We'll start today's result announcement presentation. The PowerPoint presentation has been uploaded to the official website of the company. You can also scan the QR code to acquire the deck.

Now I would like to give the floor to Mr. Sun Yang, the Executive Director and CEO, for the presentation.

[Sun Yang, CEO, President & Executive Director]

Good morning, investors. Very happy to see you again. It's been 3.5 years. I remember in August 2019, we were here in Hong Kong and then the COVID hit. So it's a very -- it's a pleasure for us to see you again. And every year, we have communication online with investors, but it's better to have a face-to-face communication and interaction. For today's result announcements, we have made a lot of efforts. But to be frank, it's not so satisfactory. There is still a lot of room to improve. So next, I would like to start the results and operation for 2022 for the company.

First, let's take a look at the overall performance financially. In 2022, for the vehicle-related business, the performance was quite outstanding, but the main revenue contribution comes from smartphone-related products. And in 2020, we have seen a specification downgrade and configuration downgrade for smartphone-related products. And that's why for revenue, gross profit and profit before tax have decreased. And this is the main reason why the performance of 2022 was not so ideal. And in terms of -- sales revenue is CNY33 billion, down by 11.5%; gross profit, CNY6.6 billion, down by 24.4%; profit before tax, CNY2.7 billion, down by 51.8%; effective tax rate, 8.9%; and profit attributable to the owners of the company, CNY2.4 billion, down by 51%; earnings per share, RMB 2.20, so down by 51%.

So our vehicle-related business was performing well, but our revenue and gross profit margin was impacted by the SPAC downgrade and configuration downgrade of our handset-related products. And here, you can see our total operating expense, CNY4.0 billion, 12.3% of our total revenue; selling and distribution expenses, 1.1% of the total revenue; R&D expenditure, 8.4%. We know that we really need some sort of expenses. The sales revenue decreased, and that's why the overall percentage of our expense to revenue increased by a small margin. And we had a very difficult for 2022. However, we have increased the R&D in XR and vehicle-related product segments. And this is to pave the way for the future for XR and our vehicle-related business. And that's why we have an increase of expense. For 2023, our target is to maintain the expense at below 12%.

And for this page is about other financial positions. And overall, it's quite ideal, current ratio, 1.6x; operating cash flow, CNY7.3 billion. Now we have a cash and cash equivalent of CNY18 billion, and net cash per share reached around RMB 11; gearing ratio, 14.4%; ROE, 11.2%; CapEx, RMB 3.1 billion.

And I would like to share with you the guidance is about RMB 3.5 billion. And we will share with you the details for our CapEx investment for CNY1.3 billion will be invested in XR and vehicle-related business. And the second investment is around CNY80 million for handset lens sets, mainly for our American customer and capacity expansion. And CNY800 million will be invested in China and vehicle production basis constructions. Another CNY600 million will be invested in handset camera module, and we will work on the integration of and camera. So in total, our CapEx plan for 2023 will reach CNY3.5 billion. And the major part will be invested in vehicle lens set and XR.

And here, you can see the revenue breakdown. With years of effort, we can see that our handset-related products is now down to 70-something percent. For vehicle-related products is now at 12.4% from 7.9% before; AR/VR, 3.6%, up by 1.2 percentage points. So our revenue breakdown has been improving, which is in line with the development of the overall industry, and it is also in line with the market share of our contribution to the vehicle industries.

Next page is the gross margin. And as you can see that, in general, our gross profit margin decreased from 23.3% in 2021 to 19.9% in 2022. And the main reason is because of the specification downgrade and configuration downgrade of mobile phones. And this has given a lot of pressure to our gross profit margin. And I believe that 2023 is a question of interest to you. And XR has been increasing. And -- but we have 70% of our revenue coming from smartphone-related business. And the positive forecast for smartphone business would appear in Q3.

So for the first half of 2023, it would still be very difficult for smartphone segment. And that's why we have been very discreet in the forecast of gross profit margin. And we believe that the gross profit margin might continue to decrease for the year. However, with our efforts, we hope to present a better result to you for 2023. And for vehicle and XR segments, we can see that the gross profit margin have been quite stable. And for optical component, 33.4% for the gross profit margin; and for optical electronic products at 10%; and optical instrument, 42%.

So next, I would like to talk about the operation review. First, for optical components. There are 3 parts. The first one is vehicle-related. In terms of R&D, we have completed the R&D for 17 megapixel front-view lenses, which will be used on Level 4 autonomous driving models. And we will continue to see the upgrade of resolutions for the cameras. And the second project is the 2-megapixel hybrid front-view ADAS lens set. And in the future, we will focus on cost reduction. So this is a ADAS-sensing camera. We have also invested in the micro lens array for vehicles. For mass production projects, we have completed the first polygonal rotating prisms that's applied in LiDAR. We are the first one in the world to be able to mass produce these products. We have also acquired several designated projects that focus on high-resolution headlamp with 1 megapixel level.

In terms of emerging optics for R&D products, we have completed the hybrid see-through lens set with wide angle. And this is for interaction of reality and virtual scenarios. And for mass production projects, it's mainly based on pancake solution. And we are also the first one to have the binocular VR optical modules.

And for smartphone-related products, in terms of R&D, we have the prism-center periscope lens sets. This is also the first one in the industry. In terms of mass production projects, we have multiple projects completed, which include super tele-macro lens sets. The second one is ultra-aperture lens set. It is also the first one in the industry. The third one is the periscope lens set with the industry's largest image size. Next one is 1-inch hybrid lens set, 200-megapixel ultra-thin lens set, 160 megapixel super definition main lens sets and ultrathin main lens sets that is applied to foldable phones. As we know, that we need to have very compact components for foldable phones. So this one is the thinnest in the industry.

Next, let's take a look at the projects for optical electronics. For vehicle-related projects, we have completed the R&D for 8-megapixel ADAS modules. We are the first one to launch this kind of products in the world. And we have the #1 market share. And we use the COB packaging technology to produce the 8-megapixel ADAS modules, which is better for miniaturization. And for mass production projects achieved, we have all series of ADAS modules. And we have adapted to the platforms of Mobileye, NVIDIA and Horizon Robotics. And we have completed certifications. We have also obtained 7 additional designated projects for 8-megapixel ADAS modules.

In terms of robotic visions, we have completed, first, the see-through high-resolution module projects, which has been used by companies like Meta. We have also the second project, wide-angle linear ToF camera modules for sweeping robots and linear structured light camera modules for small sweeping robots and other smart devices.

For smartphone-related products, we have completed the R&D products for prism-center periscope modules, the first one in the industry. For mass production projects, we have, first, the periscope modules with the industry's largest image size. So here, I'm talking about modules, and I have talked about camera already. And we also have the first-inch OIS module, 160-megapixel super definition main modules and ultra-thin main products, which is the thinnest in the industry and also can be applied to the foldable phones.

As it relates to optical instruments, we have achieved 2 projects. One is, let's take a look at intelligent equipment. With R&D completion, we have completed vehicles module automatic production lines with very high efficiency, and it is an automatic assembly line for vehicle modules. And we have also completed our integrated production lines for testing and handset lens set. With microscope, we have completed the 45-millimeter parfocal SAPO series 100X oil immersion objectives, which is also the first in China, and it has hugely enhanced the application for the products. These are the various R&D and achievements that we have made in our 3 -- in our various BUs. Despite that the year has been a difficult one, we have invested a lot in R&D.

Now let's talk about the patents. We keep our growth very high in this area. We have -- in the year 2022, we have 1,122 newly authorized patents. And then there are 3,991 patents that are pending for approval. So we are continuing to invest in R&D and patents.

And let's talk about the 3 major lines for our vehicle lens set. As you can see, we have a 16.1% increase, reaching 78 million sets. This continues to keep our leading position in the industry and continue to increase our global market share. In 2023, our guideline is that we will have a 15% in the vehicle lens set space.

Now this is about the smartphone handset total. Let's take a look at that. The total has come down by roughly 17.2%. We had produced about 1.192 billion. We maintain -- we continue to be first largest market shareholder. However, because of the overall industry downwards trend, we continue -- this number had come down. But we have maintained a 2.3% increase in shipment volume of 6P or both handset lens set. And we have -- in the overall shipment volume, we anticipate a 15% increase overall.

Now this is CCM camera module. Overall, we have a decline of 23.3% at 516 million sets. However, with the periscope modules and the large image size modules, the more technically advanced space, we have increased by 57.4%. That speaks for our competitiveness. As a whole, as a total, our 2023 for smartphone handsets, which would be a 5% increase.

This is our 2023 guideline. In the previous seasons, because of the smartphones market that I have been talking about, that's -- our assumption is that the market would start to look more optimistic in the second half of the year.

Now regarding our layout, international layout, you know very well. So I will not go into a lot of details. Either it's India or Vietnam, we have increased a lot of expenditure and capacity, and the outlook is good.

Now these are some of the accolades that our peers in our industries have given us, and I will not go into detail.

Now this year, we have added this new area of report to you, the ESG performance review. We, being a world global company, working with the benefits of the world in mind, we are happy to report to you in this area. First of all, our overall ESG strategies. There are 3 pillars. The first is the social responsibility, and the second is the environmental responsibility, and the third one is economic development responsibility. Regarding these -- it is these 3 areas of responsibilities that forms our overall ESG strategies. We -- overall, we -- our peak is to achieve our carbon peak by 2028. And by about 2058, we can achieve carbon neutrality. Now this is our overall target.

As it relates to green development, we have mainly done 2 areas of work. First is we have created a target. The first is that by 2025, our GHG emissions intensity in Scope 1 and Scope 2, the international scope categorization, we hope that our intensity would be down by 20% when compared to 2021. This is our first target, and it has already been communicated and implemented internally. And that is our greenhouse gas emission intensity would come down by 20% by 2025 when compared to that of 2021.

The second is a 3.5-year sustainability-linked bond, a total of CNY400 million. This is something that we issued. And this is -- this has received the welcome of the market, and the market believes that we -- this is an act of a company that has overall responsibility to the world.

And as far as social responsibilities, there are several areas. First is with our internal -- our employees. As you can see, our employee satisfaction has gone up to 83.4. And the second area is our actively safeguard occupational safety. As you can see, we have 0 mortality, 0 occupational disease and 0 serious accident. And also, you can see these are the various things that we have done to enhance our energy efficiency and other measures. And we have 3 layers that can safeguard this that we would achieve our goals.

First is the Board, and then there's the Audit Committee, and then there's the ESG management and promotion team. So we have an overall risk management and overall business ethics management. Because of time constraint, I would just walk through this very briefly about what all the efforts that Sunny Optical has done in this area.

Last but not least, let's talk about the strategy and outlook. Let's talk about the driving part, autonomous driving especially. So we have ADAS, in-cabin monitoring, rearview parking, surround view, camera monitoring, smart headphone, et cetera, and LiDAR as well. All of these, we are spending our efforts in. And that would create a very high value for our products.

Now as far as the vehicle camera-related products, we believe that, in this area, we can continue to expect 10 golden years of expansion, especially as it relates to sensors. We believe that the next decade will be a golden era. And another area, we believe that a lot of upgrade is to be done, be it vehicle camera or LiDAR products. First of all, Tesla is already using 5 megabytes. However, in the mainland, many brands are already using 8 megapixels. And we also have to minimize the size despite that the car interior is large. However, the size still has to come down because that would even create a better outlook, better product look. And also, the self-cleaning functionality is also very important. How is it that the lens can be clean very quickly and automatically? Now this is a very, very important feature that could ensure sustainable self-driving. So this is the main area of upgrade and improvement that self-cleaning is the main direction.

Now as far as LIDAR-related product is concerned, we believe that this is also a very important sensor in autonomous driving. Now we work in 2 areas here. The first is we live -- we create core optical components that all users can buy from us. We have indicated that the polygonal prism product, that is core optical component that we can supply. And we can also provide OEM service to any kind of LiDAR products. And we can power any of the manufacturers in this area.

And the third area is the AR-HUD. With HUD, especially AR-HUD, it will become more and more self-owned brands, and it will become more and more the standard. Now on the one hand, it's for inside the cabin, and the other one is to be a creative use. AR-HUD is a very important human and machine interacting platform. And the other area is the headlamp. Headlamp used to be a very simplistic function. However, going beyond headlamp would become very intelligent with the pixelate between humans, the environment and the car. So this will be a very important area. In this area, we would be into core components and OEM services.

So the 3 main subcategories of the automobile sector: the vehicle camera-related products, the LiDAR-related products, and the display-related products. We are into all of this, and we have already achieved some very good results.

The other area is the XR market. We are also in a leading position here. Let's take a look at the display. Now these 2 are with VR. Regardless whether it's fresnel or pancake, we are the first as far as market share in the world. Now with AR waveguide, we are also the first Chinese company into this space. We have already completed a full color AR waveguide product. It's already completed. And this is perception and interaction within the XR space. We are also the world's largest market leader in see-through and also the traditional 6DoF for tracking and positioning, and also with eyeball tracking and facial tracking. All of these are our areas of development.

And the third area is the total solutions for AR and VR and OEM as well. So in the XR market, we are a total solution provider. Now this is something more into the future. In the robotics area, we believe that with ChatGPT and , meaning the hardware and software conditions are already in place. So we are of the opinion that there could be a huge boom for the robotics space. So we are into the positioning and recognition, including the XoC layout and the smart eye, getting ourselves ready for the next explosion in robotics.

Now last but not least, let me talk about the smartphone camera. Smartphone camera remains a cash cow. We are not saying that it's going downhill. First of all, we believe that in the camera space, there is a huge point of innovation. That is the module-actuator-lens. These are the 3 most important pieces of components. Previously, we create our own module, but not the motor. So we believe that we should have all of this under our arm. So we started a few years ago, we went into motor design. So in the future, there will be integrated design and technology for module, actuator and lens. So with -- putting the 3 together and to go for integrated design, this will be a huge boost for module development. We are highly anticipating this. Now these are our main areas of innovation, module-actuator-lens integration.

Now with single camera or single modules development, I would just be very brief because you will see that with the front, we -- AF/OIS, we will reduce the size and the thickness. And there are also the large aperture, large space and also the automatic focusing, et cetera. And the ultra-thin foldable phones as well as the ultra-miniature head, et cetera. And also with ultra-wide angle, we have larger wide angle, fisheye larger than 150 degrees and auto-focus, macro shooting.

Now with Apple's -- the periscope coming out, there's a lot of possibilities. First is the 2X, 3X large aperture portrait. Now that would be a standard portrait lens. And then it's the 5X to 10X ultra-long focal length camera. And then there's the internal focusing and macro shooting 2 in 1. And there's also the prism-centered one, which we have already completed R&D. Now we're into prism-post. So we will -- after that, we will have prism-centered, prism-post and prism advance at the front. Different types of design that we can use to create very new products.

Now this is the XR vehicle smartphone business sectors and its future trends, and this is what I'm sharing with you today. Thank you for your attention.

[Unidentified Company Representative]

We move into the Q&A session. [Operator Instructions]. Lady on the third line, please? Third row?

[Kyna Wong, Crédit Suisse]

I am Kyna for Credit Suisse in China. I have 2 questions. One is with the vehicle business, because the company in the past has given certain guidelines, growth regarding modules and other products. So I'd like to ask, in 2023, overall, in the vehicle business, what is the kind of growth and trend that you're expecting? And last year, you have also given an XR-related guidance. So how about this year? What is your anticipation for this year? This is my first question.

The second question relates to the periscope, the upgrading of periscope. So what is the preparation for the company in this area? And in this year and the next, with , what's the market size that you think you can grab? And the company being in the first position, how is it that you can -- how is it that this can help with your margin?

[Unidentified Company Representative]

Kyna, can you please repeat your second question?

[Kyna Wong, Crédit Suisse]

The periscope, what is your anticipation? Apart from the large customers, what are the progress with the other customers?

[Unidentified Company Representative]

Now let me first answer your first question. With the vehicles, we have several products. ASP is with our camera, with our lens set. It's a stable growth of 15%. And then our modules, last year, we have already reached a CNY1 billion sales revenue, and our goal is to double that this year. And LiDAR is the more important one. In 2023, as you can see, the market is already warming up. And so we believe that it will grow very quickly, and we have a lot of projects in the pipeline.

This is to respond to your first question. The vehicle-related space in 2023 would grow rather quickly. And with the periscope last year, second half of last year, you will see that this segment is starting to move this in the last second half of last year, including [indiscernible] and Samsung, they are also moving ahead. So we are seeing more and more interest in the domestic market as well.

As you can see, our PPT, when you compare this one with those of previous years, you will find that there are differences. Previously, we were only talking about it very briefly. However, as you can see, the 5X to 10X and then the centered -- prism-centered and prism-post, et cetera, these are -- we are also into these new areas. This is to work in line with the market. So smartphone space, we continue to expect some growth. Now as far as what is the amount that we can ship, that would be dependent on the actual situation.

Now next question. The other side, please.

[Huang Leping, Huatai Securities]

I am Huang Leping from Huatai. I have 2 questions. First is about the gross -- the GP margin. I have calculated, last year's GP, the unit price for modules and lens set seems to have flattened out, and the GP had come down quite a lot. Now based on the previous experience, would the 2 go by the same trend? Or what is the reason? And for this year's guidance, can you talk about your 3 business units? What are the GP trends that you're expecting? And how about the competition? Do you expect it to improve?

[Unidentified Company Representative]

First of all, overall, because of the de-SPAC situation of last year, which I think you are very familiar with, with the handset lens set, our volume has come down by 17.5% as well as our GP. So our GP was in the range of 20% to 25%. This is the second half of last year and handset lens MP, with the second half of last year would be around 30%. So we anticipate 2023 would be somewhat retained at 25% to 30%, like H2 of 2022.

Now with XP, it has come down a bit. Now last year, ASP for handset lens sets were quite different in the first half versus the second half. When we compare the two, there's a double-digit decline. However, with the second half compared to the first half, there was a 10 percentage point of improvement because of product mix change. Now when we look at it from now, we are not that optimistic. We believe that ASP continues to be under pressure. So this is about the handset lens.

With modules, the ASP for last year has been quite stable. As you can see from the PPT, the high-end products, we have a 57% increase year-on-year. So under such a very difficult situation, this is a part for us to maintain our ASP stable. Now overall ASP and GP will continue to be under pressure. With ASP, we believe that it would still slide down a little bit. With GP, our target is the overview of 5% to 8%. And that is the GP for the second half of 2022.

Now with our optoelectronic products, it will be better. Because of the VR and the vehicle modules, these GPs are going up. And it is evidently very -- a lot better than those of modules.

The third area would be vehicles cameras. ASP is stable, and GP is also stable at 40% and like the second half of last year. And our anticipation for this year is the same.

[Huang Leping, Huatai Securities]

In Mr. Sun's PPT, he had talked about the overseas layout. So this is -- in the last 3 years, the world has changed a lot, including customers' demand, including customers, manufacturer site, et cetera. Those have been very different. Now was it -- how about the customer side structure mix? What is your plan outside of China? And to work with the global change, how about 2 to 3 years ago? What do you expect our overseas deployment or plan in the world, in the manufacturing outside of China to look like? And what do you expect the market to look like 2 to 3 years from now?

[Unidentified Company Representative]

You know very well that in the last couple of years, the overall economic situation and supply chain had gone through a significant change and disruption. With the supply chain, we have to look at our deployment, our layout of the manufacturing. There may be some actions that you are expecting. Now for Sunny Optical, we are also facing the same challenges. We definitely have to look into the supply chain safety. One -- now Vietnam was our only choice. However, in the future, if needed, we will deploy resources in other countries. The investment is rather big.

Now if we look at the overseas layout, overseas production, probably could be the main source of growth in our capacity in the future. And this would be a huge investment. So as to how much exactly, I am not sure now, but I can tell you it's a big number. And if we look at the number now, it's a big number. But if you look at the future, it's rather a need more than anything else. Now our proportion in overseas manufacturing is rather small, mainly is in Vietnam and India. But in the future, we may accelerate on this area of development.

[Unidentified Company Representative]

Next question.

[Unidentified Analyst]

And I'm very happy to be seeing you after 3 years of COVID. I'm . I have several technical questions. First is with vehicle modules, someone said and the integrated technologies. So what would that have -- what kind of impact with our market for vehicle lens? And what would its impact be to our income? And then there are some designated projects. Would those be included? So that's my first question.

[Unidentified Company Representative]

With A-PHY, we have worked with the Valens. There is really a company that is in the very far edge of this technology. A-PHY, I would say, is the future with the enhancement of pixelation -- of pixel size of the sensor and with vision with a sensor that would be -- more and more would be higher. So we believe A-PHY is a necessary direction. Its characteristic is a point-to-point transmission. And also, its bend is very wide. The battery is very efficient. We work with variants. And if there's an opportunity to launch that in the domestic market, we definitely would be the first one.

Regarding NVIDIA and Mobileye, we're also working with them. This is also the way that we would differentiate ourselves from other module manufacturers. Another thing is with . This is not suitable for a point-to-point transmission. What we needed is from LiDAR and the camera to directly connect them. We do not need another router. So the Ethernet has really nothing to us. What we are keen about is A-PHY, which is very -- has a lot to do with our future competitiveness. This is something that we are working very hard on and hope to be able to surprise the market in the future.

You were talking about the motor -- integrated motor -- module-actuator-lens integration. Do we expect ourselves to be the main driver and the main manufacturer here? And what are the specs that we are looking into? I'd like to ask -- tell you that the module-actuator-lens integration, our focus is not to grab business from the existing actuator manufacturers. They are doing very good, and they are excellent. And in the very near future, we will continue to buy in big quantities other manufacturer-created actuators. But the module has to be nicely put. The size has to be good. And then with the driver, the speed has to be very good, and the anti-vibration has to be excellent. So this is what we are looking into.

The third area, because of the integration required, we need -- we definitely would be creating some of the actuators, the motors in order to work with our design. However, we will be buying a lot from other manufacturers. And if our customers or our other manufacturers need our actuators, we can also provide to them. We are not exclusive. We are open for business. The importance is that the integrated modules. We do not compete with motor manufacturers. It is a complement rather than a competition.

[Unidentified Company Representative]

Okay. Next question?

[Unidentified Analyst]

I am [indiscernible] from [indiscernible] Communications International. I have 2 questions. You were saying that the ASP and GP for vehicle business is -- would be -- remain stable. This is a good viewpoint. As we can see, the price cut is very huge. And are you confident that you will not be impacted by your downstream customers requiring a price cut? So what is your -- the basis of your confidence? And also with your order book, what is the visibility, right? For how many months or how long can you see into the future? This is my first question.

[Unidentified Company Representative]

So you were talking about vehicle handset lens sets. We had, for continuous 10 years, been the largest global market shareholder, exceeding 30%. The second run-up is not even 10%. So they are quite far away from us. So all in all, our product mix for the vehicle lens set is the best amongst the world. And the view and parking rear lens, for these, we don't have a lot. So our vehicle lens set is leading. Most of the markets, 8 megapixels lens sets were provided by us. So we are already working with our customers, including the pricing. So we have ASP and a GP stable under such considerations.

Now with -- we -- the guidance that we give for fluctuations is not too big. However, with the overall vehicle lens set space, the fluctuation we -- that we expect would be a bit higher than before, but it would not be very different from before.

[Unidentified Analyst]

This is my question. My second question is something that has been bothering me for a long, long time. We see in the LiDAR and in smartphone space, there's a very big difference in positioning. With the smartphone, we are more into modules and also in the core lens set. However, with LiDAR, it seems that we continue to be not planning for modules, we are mainly into core components. I'd like to ask why is it that our strategy for the lower stream becomes so different between the 2?

[Unidentified Company Representative]

I have already, in the last couple of years, explained to our investors -- we've explained about our positioning for LiDAR, and we'll be into OEM, we will be into core components. And because the LiDAR OEM revenue is rather small because the overall module's demand is not big, so our main focus is with the core components. So our position is clear. We will be into core components. And at the same time, overall OEMs, we would also provide such service. Now this is for all LiDAR suppliers and partners. We're not competing with us. If they need OEM, we have OEM. If they need components, we have components for them. So we would not be concerned about the up and down of the LiDAR markets. In both ways, we can service the markets.

[Unidentified Company Representative]

The lady on the third row, next question.

[Unidentified Analyst]

I'm . I have a question about XR sales target. What is the sales target for this year? And also, I see that in your PPT, we would -- we might go into solutions. So this is -- is it optical plus display or other kinds of solutions?

[Unidentified Company Representative]

With the VR, I think Mr. Ma has gone through that. So with XR, AR, MR, VR, overall XR, I think it's about 30. We anticipate sales revenue to grow by about 30%. Last year was about 40%, if I recall correctly. This year, it's about 30-odd. This being one. And then with AR/VR, it's like this, we would be into pancake. We will be into display. And we're also considering FATP because we believe that with AR, basically, is all for us. The AR waveguide, the 6P cameras, the see-through and the AR checking, the projector and the positioning. Now these are all our core competencies. So we are not going blindly into FATP. We have estimated -- we have assessed this very clearly. We believe that with the display and the waveguide AR, it should be us that provides the products. So we would go into FATP in its entirety.

[Unidentified Analyst]

My second question is that relates to the smartphone in the first half of the year, like you said, and the price has come down, the same applies in Taiwan. And there are some other manufacturers who are saying that they would pull down the price in order to get more GP. So do you think this is going to continue? Or when can we expect some evident recovery?

[Unidentified Company Representative]

This is something that I have already discussed at the very beginning. We have discussed with all of our industry partners or our peers. Overall, I think we are too pessimistic. Maybe I should not say that. But I think our view is that we can expect recovery to begin by quarter 3. As a matter of fact, we already see some manufacturers seeing more and more orders. This is something that we haven't seen in the past 2 years. In the first quarter, we are already seeing some more orders because with COVID coming towards the end, the consumption would become better and better. So we believe smartphone would improve in quarter 3. Next question.

[Lin Zhongheng, BOCI Research Limited]

I am -- BOCI, Lin Zhongheng. I have two questions. One is with XR. We have seen that with [indiscernible], they have been moving very quickly.

[Unidentified Company Representative]

I don't know whether what are our R&D plans in here. And as we can see, the -- with the waveguide AR, it still requires a lot of investment. Now with VR, we can all see, the actual is a bit different from our expectation. But this has to do with the continuous development of . With economic recovery, this will continue to improve. We expect more, but AR -- with AR, we had put in our deployment of resources very early because this is a semiconducting -- semiconductor business, which means that the R&D time would be more -- we consume more money and time. However, we put our high hopes in here.

On the one hand, with AR, optical elements plays a very important role. And we can create all of the core components, and we can also go into overall modules and complete solutions. So this gives us a very good opportunity for future development, which is something that we would not give up despite that we look at -- when we look at it now, there may be some uncertainties, but we definitely would be putting in resources. Now in Shanghai, you can see that we have already prepared some lens. This speaks for our view of the future in the space and our action to -- of commitment.

Of course, in the next 1 or 2 years, you might be able to see some income and profits. But with some -- but with VR, we definitely are moving on. Last year, we already see 53%.

[Lin Zhongheng, BOCI Research Limited]

So the capacity planning for all of the production lines, can you talk about your outlook?

[Unidentified Company Representative]

Simply put, the signal that we send is very clear. The large part is with XR and vehicles. With smartphone modules and lens set, we basically should maximize the current capacity. We would add on about 800 million. But we cannot disclose further details now. Last question.

[Andy Meng, Morgan Stanley]

I'm from Morgan Stanley, Andy. I have two questions. One is about our revenue and GP turning point. Based on Mr. Sun said, we can guess that quarter 3 would be a turning point. How about the GP? In the past, we -- be it our smartphone lens sets, despite that our growth, as far as our GP, is not growing very quickly because of the price. That's for smartphone. But Mr. Ma say, the GP is already very high last year. So does it mean that our new business, the GP will be higher than the smartphone? If that continues to be the case, our GP turn point, do you expect that to see it in the second half of the year? Or do we expect that next year or even further away?

[Unidentified Company Representative]

Your question's quite hard for me to answer, frankly speaking. First of all, with the overall vehicle sector, overall revenue as a share is increasing. With year-on-year percent, it's 38%, and with the VR, it's 53%. Now these 2 areas, GP is improving very well. Now if -- I mean the net profit. If this continues to be the case, then the turning point might come soon. However, you -- we're looking at the overall net profit, and that -- the handset piece becomes very important. The handset lens set and the vehicle, if it continues to come down, and when it comes to quarter 3, like we had expected, the turning point comes, then the GP and the net profit for these 2 would also come, of course, as soon as possible and maybe faster than you expect, but we will put our efforts in here.

Thank you, Mr. Ma. I hope that the second question will be easier. It's about our vehicle lens set. We had been a market leader at 30% market share. But we are not into North America and other markets. If the U.S.A.'s market share of electric vehicles becomes bigger and bigger and we are not yet into that market, so can we remain the world's #1? And do we go in with a single lens set? Or do we go in with more module products?

Now with Tesla, we already have a plan internally regardless whether it is lens set, modules or integrated products. As long as we can go in, that would be great. And there are 2 -- only 2 ways. One is you either is very cheap or you have something technology that makes -- that shines in their eyes. We'd rather go for the latter. So I can go in any time, actually. I can just cut my price and give it a big discount, and they would say, okay, this is very easy, but this is something that we don't want to do.

So with the high resolutions, small size, self-cleaning, these are the edges that could make us shine in front of them. We already have our own internal targets, giving very high pressures to our BU heads. So I believe we can give you some good news. We believe that with Sunny Optical's capabilities, we can conquer. We can address the difficulties.

[Unidentified Company Representative]

Given the time constraint, we will end our session here. Thank you for being here.