Sunny Optical Technology Group Co Ltd

HKEX:2382

Welcome to the 2023 interim Results Announcement and Press Conference by Sunny Optical Technology. On behalf of Sunny Optical Technology. Thank you for your long-term support.

First of all, let me introduce the management present here today, Executive Vice Director and Chairman of the Board, Mr. Liaoning Ye; Executive Director and President, Mr. Yang Sun; Vice President and Corporate Secretary, Mr. Ma Jianfeng; Senior IR Manager and Corporate Secretary, Ms. [ Yanfeng Christina Liu ]; Investor Relations Director, Ms. Pui Ling Wong.

Now we will start the slide presentation. The presentation is also uploaded to the official website. You can scan the QR code to gain access now. VP and the president, Mr. Yang Sun will start his presentation.

Investors, good morning. Now we have less investors attending our press conference. We hope that we can improve our performance. So we will gain new market opportunities. And I'm sure in short time, we will taking a full turn out sometime soon. And your presence here today represents your support. So thank you very much.

Going forward, I'm going to report on the business performance of the first half. Frankly speaking -- in the first half, in vehicle lens Sets business, the management believes we still have done a very good job in vehicle lens sets, camera module, LiDAR, HUD, head lamps. We have achieved very good progress, and we will share the details in the slides, but the biggest revenue source remains the smartphone.

As you know, in the first half, the smartphone market is still bottoming out. And at the same time, camera lens and other stuff are going through the despec trend, and we will represent it with some numbers. Well, what I mean is that our vehicle business is doing well, but smartphone is still bottoming out. That's why our gross profit margin revenue and net profit have come down. Our revenue came in at CNY 14.2 billion down by 15.9%. Gross profit, CNY 2.1 billion, down by 39.5%. Shareholder equity, CNY 1.9 billion, and earnings per share is down by 67.8%. I would just go through the numbers very quickly.

We have disclosed these numbers in our corporate disclosure documents. In this page, you have the revenue numbers in the first half, the percentage of total operating expenses is 13.3%, is 1 percentage point up from 12.3%. Selling and distribution expenses are up 1.7%. The reason is that after we have gone out of the pandemic, we had a lot of visits, physical visits to customers. This was beneficial because we had to maintain this exchange with our customers.

R&D expenditure dropped. That doesn't mean that we have reduced our R&D projects it's down because we have controlled the efficiency at a reasonable level. Operating expenses are up in the second half. We will update our budget. And hopefully, in the second half, the Operating expenses will be controlled under 12%.

Let me quickly go through our financial ratios. In the first half, operating cash inflow came in as CNY 1 billion, still positive cash and cash equivalents, CNY 20 billion. Gearing ratio, 12.2%, ROE, which is coming down significantly and now standing at 2.1%. Capital expenditure CNY 1 billion in the second half, we will update the annual capital expenditure in the hope of controlling our CapEx and optimizing the number.

In the beginning of the year, we shared that the CapEx this year would be RMB 2.5 billion. As for the breakdown, CNY 800 million will be spent on XR business -- CNY 800 million, CNY 600 million will go to our new factories in Vietnam and other -- we need to expand our bases. CNY 500 million will be invested in handsets, lens sets. This is mainly in response to our major customer in the U.S. CNY 400 million will be spent on vehicle-related products, CNY 400 million, CNY 300 million will be invested in technical upgrade. And mobile actuator integration for smartphone lens sets. So CNY 2.5 billion in total.

We hope that through these measures, we can smoothly go through this very difficult period. The next page shows the breakdowns of our major product mixes. As you can see, smartphone-related business has come down, now standing at 67.9%, down by 7.3%. Vehicle is rising very sharply from 10.2% to 17.3%. You are also interested in XR VR business. It's down from 3.9% to 3.3%. There were some seasonality reasons because our main customer remains Meta in the second half, Oculus 3, including cameras and Pancake modules, we'll see higher numbers of shipment. So we believe the percentage will continue to rise.

This page shows gross profit margin in the first half gross profit stood at 14.9% optical components, 26% Optical electrics, 6.9% Optical Instruments, 42.7%. You may want to ask the guidance for our GP margin in the second half, we believe there are three aspects. First of all, we predict that smartphone will continue to build a bottom. In the beginning of this year, we predicted that the number will bottom out in the first quarter, and it will rise again in the second quarter, but instead, the number still dropped in Q2. We maintained exchanges with our customers and industrial peers. We believe that the -- for the end of the year, it will bottom out. And with the coming back of orders from some major customers are ASP and production efficiency utilization will benefit.

Thirdly, we will continue to cut costs and improve efficiency with the reasons above which lets the GP margin in the second half will improve and become much better than the first half. But this is the prospect for GP margin in the second half, three things. Smartphones numbers will bottom out. Shipment numbers will rise again from major customers. And thirdly, we will cut costs and improve efficiency. So this three reasons are behind the good specs for the second half of this year.

Let us then look at some achievements in R&D. First of all, vehicle business. in RMB, the very fast successful product is that we provided to an autonomous driving company a full set of 17 million pixels front view and surround view vehicle lens sets. That was the first project that served Level 4 autonomous driving, by the most famous autonomous driving company in the world.

Secondly, we offered a 3-megapixel and 8-megapixel ultra miniaturized side view vehicle lens sets. We believe miniaturized will be a major trend. Thirdly, we offered a 5-megapixel ultra miniaturized OMS vehicle lens sets to a major autonomous driving company.

As for LiDAR, we had 2 major projects. First, we did a scanning module combined with polygons and electrical motors. Secondly, 3-D flash transceiver modules have been completed. Fourthly, in HUD, we have built the costs this year. We completed the LBS solution as part of HUD.

Fourthly, we produced some smart lamp headlamps. This headlamps can be used inside to express people's feelings and emotions with different colors of lights. This represents the future trend, and we had some R&D projects in it. As you can see, in mass production, we have various 8, 3 and 1.7 megapixel sensing vehicle modules. It's worth mentioning that we have at the very first COB project in 8 megapixel. BGA was often used before, but now we went for COB for miniaturization and good heat dissipation, but there are great challenges in safety. And we did a project on 3 megapixel e-mirror sensing. It's a sensing class viewing vehicle module.

And in the third project, we had 8, 5 and 2-megapixel in-cabin monitary vehicle modules. These are our R&D projects and mass production projects in vehicle business. In XR and RodicVision-related business. First, we successfully developed a new generation of see-through, as you know, see-through became a more important thing in VR business. Quest Pro, Quest 3 and VisionPro, all used see-through technology. combining the real at virtual worlds.

We shipped the new generation of modules, and we are working on the next generation. Secondly, we did RGBD robotic vision modules. The algorithm behind was self-developed. In mass production Quest 3 started to use VR tank display modules, and we are the major supplier. Secondly, with regards to robotic vision we developed an intelligent door lock recognition module, which is useful to the elderly. We developed this recognition module and the core remains our self-developed algorithm. So these are for XR and robotic vision. Thirdly, let me talk about the smartphone-related business, both R&D and mass production.

Number one, we developed a new long-focused handsets lens sets with folded light route. New long-focused handset lenses with folded light route. That means our product will be comparable to the long-focused product by the U.S. company through innovation, we will serve our customer. This is a new technology with folded light route. Secondly, we have various hybrid handset lens sets with large image size and variable apertures. We developed variable aperture handset camera modules with large image size and OIS. And besides that, we have a 200 megapixels periscope handset camera module. That's related to our R&D in smartphones. As for mass production, first of all, our ultra low-reflection [indiscernible] used for one or two pieces, but now it's used for each lens. This is the first point I need to emphasize on.

Secondly, in the future, we will have more foldable handsets, both vertical and horizontal foldable handsets, and they have higher demand for miniaturization and ultra sync lens. Thirdly, we developed a 1-inch handset lens sets, which is hybrid. And in the end, we have our own OIS handset camera module with our self-developed actuator. It's for the first time, that we achieved the design of module actuator station, which was a major breakthrough. Those are the projects we have achieved.

In the last part, I'm going to talk about optical instruments we had [indiscernible] projects. The first one being VR optical component inspection equipment and the second being vehicle lenses dose detection equipment. These two equipment sets are primarily used for our own business units, which will improve our inspection efficiency in VR modules and vehicle inspections.

In mass production projects, we developed a prototype of a circulating tumor cell analysis system. Going forward, let me share with you our latest progress in patent applications. In the first half, we had 473 new patents being authorized. These were very important patents, including 278 invention patents as of the end of June this year, 4,048 patents were still pending for approval these are for our patent applications. And more and more, our patents have been coined to vehicle and XR preparing us for future competition.

Going forward, let me also talk about our 3 major production lines and their progress. First of all, vehicle lens sets. In the first half, the shipment volume rose by 25.2%. This was much had an industry average. And now it stood at [ 47,000 ] pieces. And in the whole year, we believe -- the target for the whole year will rise by 15% plus, that's for vehicle lens sets.

So that's about handset lens sets. You can see that the decline is quite big. We're down 21.3% in the first half, shipment was 512,000 units. And then on the right-hand side, I think you are familiar with this chart. When the industrial cycle was better, Actually, our growth is much higher than in the left. Here, you can see here ESXP and about handset lens sets is down 32.9%. So as I said earlier, in the first half, well, the decline was still happening. So you can see that from these data.

So that's about our handset lens set down 11.8%. In the first half of the year, 254,000-odd units were shipped. On the right-hand side here, you can see Periscope modules and large image size modules, the decline is even bigger, down 51.7%. In the first half this year, for lens set, the situation is very tough. But then in the second half, we believe that the situation will improve. [indiscernible] camera.

So I think you are familiar with our global layout in Vietnam, India, we have been gradually developing from production basis. And then in the third part, let me share with you our future outlook. For the first chart, here you can see vehicle is the second tier growth curve for our company. So this is already quite apparent. Let's take a look at vehicles. Basically, in the vehicles, all optical-related sensors and display devices, we are producing them. We are making them here, you can see ADAS, which you were very familiar with and then CMS also for in-car monitoring and OMS and then surround view, surround view. Surround View will turn into sensing, so from display into perception and sensing. And then we view LIDAR, HUD, then there are many Pixel head lamps, different types of near-field projection lamps. So there are a lot of things that we can do in a vehicle.

However, the value that we can derive from that will far exceed handset, lens set or smartphones. Let me now share with you optical sensors for vehicles and our views about the future. There are 3 parts. You are familiar with vehicle camera-related products and then LiDAR related products and then HUD and headlamps. Okay. Let me talk about vehicle lens sets and cameras. Right. Let me conclude.

In the future, for vehicle cameras and lens sets, there will be 3 development trends. The first trend is, we are talking about intelligent driving virtual cabin. So they are not only about external. They are also about internal. And then I'm talking about lens sets and camera requirements. They will be enhanced, and this will last for a long time. I think the running time will be longer. That's the first judgment.

Secondly, for these lens sets and cameras. The resolution will continue to rise because people want clearer vision. They want to be able to see further away. And then the third trend is for cameras and lens sets hybrid, hybrid lens sets like those AOD coating technology, ultra-low reflective ones. So the distortion will be removed. The application of such technology will become more and more widespread. So for cameras and lens sets, there are 3 towers that are driving the development. So resolution will be higher, image size higher and then for different scenarios, that will be the need for new technologies.

In order to better satisfy all these scenarios. These are the 3 driving forces. At present, our positioning is this. For vehicle lens sets, we are still leading the market, 30-odd percent market share. And now with CRM and OEM vendors and with other brands, Qualcomm, [indiscernible] horizon and so on, we maintain very good working relationship. So that's about vehicle cameras and lens sets. The second thing is LiDAR. So you may have different news concerning LiDAR but we believe that high-level autonomous driving at presence still needs LiDAR for assistance. FSD. People may be thinking of whether FSD will be widespread all over the world. But as in the case of Tesla, [indiscernible] operating system [indiscernible] there.

There are very few companies that can integrate all these. Most companies need to do some sort of integration work. And for a longer period of time, LiDAR as a very safe sensor will be essential and indispensable. So we think that in the future, LiDAR will see very good development [indiscernible] within the LiDAR scope, we have said many times that we work on optical components, parts, assemblies, modules and also OEM for LiDAR. So we are the working partners of and also empowers -- empowerment for the LiDAR suppliers.

And then for display. There are a few insights here. First of all, we think that in the future, AR HUD has already become a highlight for differentiated components for vehicles. It is not good to have. It is a high life for differentiated competition and competitiveness. This is for sure. For headlamp, well, it is to lighten up the environment, but then it will move towards pixels, intelligent development and also interaction. So now we also have smart projection lamps, as I said just now. For these protection lamps, they will display the drivers mood during driving, they will display a certain vibe. In China and in the Asian market, this develops fast.

So there is one more category here, and that is smart projection lamps. All these are about display. Now you are aware that within HUD, we have DLP and COS, AOBS as well, so in other words, we are able to offer optical engines to different types of HUD for development. And for smart headlamps and projection lamps, the same strategy. for headlamps and projection lens manufacturers, we will offer core optical components and parts. So for vehicles, these are the three major categories with three very clear development directions, and we see a lot of opportunities here.

This slide shows our plan about XR. For VR display, we have done two things. First, [ Safilia ], a lower-cost option and then Pancake. Of course, there is constant iteration for Pancake from flat service to cloud service, and there is a lot of challenge here. And we give full play to our strength. Apart from Meta, we also supply to other companies all over the world.

For positioning and interaction cameras, very broad. There is a 6-degree tracking, video see-through RGB head localization phase and trying that and so on. All these are our strengths. I think we need to do a better job in this area for AR perception, I think at least 4 cameras will be used. So the number will far exceed that in smartphone.

For AR display, we are doing two things. First, display or imaging. So optical waveguides. In Mainland China, we are the one invested the most, and we are the leading one apart from the nano printed waveguides [indiscernible] technology. So in other words, we have made a lot of investment in this area.

And then for projection, we offer optical machine -- or actually optical engine. So this time, it's not very accurate here in the English version. Optical engine. So there is a projection which is shown on AR glass, which is a big module. And then for optical engine, we are very strong in our product portfolio. there is COP, which is a bit more costly but high performance. There's also micro AOE option, we also have that. Now, we work on these two separately. But we are of the view that if these two are assembled, then they are -- they will become a very big module and FETE will be very smart in the future. That is our views about AR.

On this page, you can see IoT area or territory, we have done quite a lot in this area. For hardware, algorithm system drive total solution, we have made our layout. So chips, algorithm, vision modules and so on. These will -- on the major assembly work of robotic modules. ChatGPT and also human LiDAR machines. All these, we are doing a lot of deployment to achieve a better position. Finally, handsets, smartphones. Here on the PPT, you can see 4 directions, front camera, main camera, ultra-wide angle and telephoto.

In the future, for competition and differentiated about handsets, 2 main areas. Main camera and Long focus, I think these are the 2 most important directions. Innovation will be in these 2 areas, main camera and telephoto. For main camera, the direction is very clear. First, large image size, after that, the aperture should be large. And after that, there is a need for combinable or ultra thin aperture.

So okay, we have to reduce the weight and height for that large aperture. And then for main camera, the photography effect must be good. So there must be OIS and sensor shift stabilization. When the lens set is getting heavier and heavier, so we need this sensor shift stabilization.

Okay. Regarding main camera, things will shift towards large image size, large aperture, ultrathin, OIS and sensor shift stabilization. These are work that we need to do. And then telephoto. Next year, it may be a very big year for telephoto. We are #1 globally in this area because we have already launched a few generations of Samsung S series products, we are the main supplier. And then for Huawei long focused products were the supplier as well. So next year, if it is a big year for telephoto there is a lot that we can do.

First, prism centered and prismpost options. It is related to the folded life part that I mentioned just now. And then we have to lower the high telephoto. So it should be thinner. The third thing is within a lens set between different pieces of lens, we need to achieve auto focus internally between groups. So these are the 3 things that we are doing.

Okay. Finally, let me talk about our ESG work. For our group, ESG and not for the sake of showing to investors or the regulators or customers, we know that ESG is important [indiscernible] in case company's core competitiveness. It will help our operation and marketing as well. So it is not because this is a requirement of the regulator. It is not [indiscernible] it will help us a lot. So that's why we have done a lot of ESG work this year. Our MSCI rating has been improving. Besides we are included in a number of ESG's elected indices. I won't read out the names and we have won some government awards, [indiscernible] province, carbon factory provincial green factory in Hanan and so on. We have also one other ESG awards. Many of them, I think you are familiar with them.

So, the second area is greenhouse gas emission. We have made an undertaking for Scope 1 and Scope 2 GHG emissions. We hope that by 2025, GHG emissions comparing with 2021 can be down 20%. That's our undertaking besides, our bond sponsors told us that among Asian technology companies, we have been issued the first sustainability-linked bond or green bond in the amount of USD 400 million. We are very proud of that and our customers like this as well. Now I won't read out all these details. For example, we have increased energy efficiency, resource use efficiency also improved. We did a lot in energy transformation. Anyway, ESG and green sustainable development will be -- will be regarded as our core competencies. We will seriously improve the work in these areas.

Okay. So that's all in my presentation. Thank you, everyone.

[Operator Instructions]

Thank you for the presentation from CLSA. Two questions. Your new base in Vietnam involves RMB 600 million CapEx. Can you please talk about capacity numbers at this base. In the first half vehicle had a 25% increase. It's higher than industry average. What are the main growth drivers behind that?

We have seen more fierce vehicle lens sets in China. Can you please talk about your observation?

Let me respond to your first question first. Our new production base, we started in 2022 as the first company working on vehicle lens sets due to the tariff problems from the U.S. Well, due to the global geopolitical situation. When we set up overseas institutions, we are faced with greater challenges. Vietnam will be one of the major markets in our future development plans. The new base is still in preparation. We believe we will wait until the second half next year to see its production. This space will be in a bigger size, and it will take a longer time. But it's not about migrating our current production capacity. This new production base will mostly take up the new business from our business plan. That's my response. Do you have any further questions?

Can you please talk about the prospects for vehicle lens sets and shipment numbers?

I should say, vehicle, is the second largest business segment to our company only after the smartphone. We were one of the early companies tapping to this market. Now with higher demands for vehicle lens sets our optical electrical products see more applications and better prospects. But vehicles are different from smartphones. Smartphones will see a very high increase. But vehicle lenses due to stringent standards will be only able to increase gradually, but it's been for a very long time. If autonomous driving has become prevalent. It will take a few more years. We believe our company can offer products continuously. So our vehicle customers can make better use of our product.

Next question, please.

I am from Huatai Securities. I have 2 questions. First question is related to handsets. For the high end, the share is coming down. GP margin is coming down, unit price is coming down. I guess the market is not really good. And in the past, Huawei did a good job with premium phones. Now their share has come down. Now the market looking forward to Q3, Q4 this year, and they hope that Huawei will come back up, what do you think? If Huawei returns to the handset market, then will that be a one-off impact on your modules? Or will it change the overall competitive landscape? What will be the impact on you and what will be the impact on GP margin? Your guidance, please.

For the H company, well, according to the publicity and promotion, they will be coming back or returning to the market, where we will be doing preparation work disclose some information. In the handset lens set, we work a lot with the H company. A lot of new generation cases are with us. So if next year, as they said, they can reach sales of almost 100 million units, then for optical product, GP margin boost, there would be a lot of hope. Of course, we hope that H company can lead a virtuous technology upgrade. And then we think that the industrial chain will be healthy. When they are still in the market, there was constant technology breakthrough and iteration. They are a good leader. We do look forward to that success, and we are the most or the main working partner, and we can benefit from their growth.

When they come back, Well, the market will not -- is no longer as big as in the past few years. There was negative growth or 0 growth and there would be some offsetting in terms of growth. This is quite natural. So if they put an effort towards the higher end of the market. I think that will be a very good information and news for the market.

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My next question is about vehicles. So I think we come across a valuation relationship you make disclosure based on products, so modules, lens sets and instruments. And for the revenue, they are disclosed based on customers for vehicles. So vehicles CNY 1.7 billion revenue and we don't know what the structure or breakdown is. I want to know the profit contribution of vehicles, how big a share of your company [indiscernible]. So CNY 1.7 billion, CNY 1.8 billion revenue, 14% GP margin, gross profit, CNY 2 billion. So is it true that GP margin for vehicles already reached 40%? How should I do the calculation? Can you offer us some ideas and logic? Lens sets 40% GP margin, then vehicles should account for 40% of your total gross profit? How should I do the calculation?

This is a very good question. I think we should offer some time for Mr. Ma to do some calculation. Sometimes there may be some disclosure issues. I think your idea is correct. How can we [indiscernible] or express our BUs, more clearly, which category makes how much profit and so on. Yesterday, we had a board meeting and a director also made the same points. So handset is the biggest segment, and we are used to that. And I think Mr. Ma will have to do some work in terms of the dimensions applied and adjustment.

Next question please.

Thank you management from Citibank. It's nice to be back here in person I have 2 questions. The first one being vehicle related. In the first half, ASP was a stable vehicle [indiscernible] side. I wanted to confirm that if it is true. And GP margin is quite stable expected. Vehicle contributed 17%. How do you look at the contribution from vehicle camera modules because at the beginning of the year, you said the number would double, is the number really double what you expected. Well, I'd like to ask a question for investors. For the whole year, any guidance, any expectation for shipments of mobile smartphone lenses. We heard that some of your peers said there would be a market recovery, and there will be structural changes of product mixes. So what about your view?

With regard to vehicle lens. Yes, you are right. In the first half, the ASP was quite stable. And GP margin around 40% was stable as well. We expect the same in the second half, ASP GP margin continuing being stable. As for market structure -- product structure, [indiscernible] was up 17%. ASP is stable, their absolute number increased by 25%. So was revenue. But the problem is with camera modules. There was a 100% growth compared with last year. In the first half, there will be high-speed growth in vehicle module. In March, we said the annual target would be CNY 2 billion. But in the first half, there were some disturbance to the performance of domestic carmakers. So there was problem. It's still difficult to reach CNY 2 billion in the end. We try to reached CNY 1.6 billion instead. But compared with the same period last year [indiscernible] of growth or higher.

Your second question has to do with shipment or the general case of the whole industry?

Everyone knows, smartphones are not doing well this year. In the second half, the numbers will probably not stabilize. We expect to [indiscernible] 7% decline in smartphone shipment numbers.

Lens market has already saturated. So will probably increase higher than smartphones. And we will adjust our guidance. It will be negative 10% here roughly the same as industrial average. Modules [indiscernible] and our target will remain the same at least as last year. No decline [indiscernible] but very slight. [indiscernible] remain the same as last year. We hope that we can see some opportunities in the second half with the coming back of major customers and with a better price [indiscernible] in our 2 product lines have improved on the basis of last year's performance.

Next question, please.

I'm Andy from Morgan Stanley. I have one question. In the first half of this year, in the whole industry, the situation is the terminal manufacturers of handsets, their gross -- Their profit margin has improved, but then other companies are under pressure. Business results have declined a lot at the beginning of the year, you talked about inventory clearance. So there is this diverse development. But in the long run, downstream customers, that should not be the issue that downstream customers are making a lot of money, but then for components, manufacturers, their profit declined. So for the industry's trend change, do you think, will there be the situation where when downstream companies recover their profit margin, then there will also be an upward trend for your profit margin when manufacturers' profit margin rises, they will have stronger momentum to go for upgrades of their lens sets as well. Is this the right logic. And which points should we pay attention to new case planning and discussion? Or should we look at the real orders placed and then whether or not unit price is going up or not, are we -- or have we seen this kind of phenomenon?

Okay. OEM manufacturers did quite well in the first half. Well, let's not think about the U.S. company. Beijing [indiscernible] has publicize the financial statements. I met with the CEO, Mr. Lu last week, and their profit was quite good. He had with me about some issues. I think the situation is quite reasonable. Anyway, the first point is that unit price is going up, income per user is going up. IoT is profitable, and they confirm that in this round, there's a lot of harvest in the supply chain, so to speak. The supply chain is doing well. So overall speaking, profit level is quite good in the financial statements. To me, well, we are also operating this kind of company, so we've had that discussion.

In the long run, I think in the ecosystem, there should be co-existence. There should not be a certain part, which is highly profitable and another part is not profitable. That won't be sustainable. So in the whole industrial chain, I think we are trying to rediscover the price, not only our company, for the whole industry. People are trying to rediscover the price so that, that will be better and sustainable development.

In the first half of this year, as you said, OEM and supply chain have a lot of differences between them or various between them. There are many factors for the earlier period, low to medium and capacity expansion was big, and there is a lot of demand for the medium to low end suppliers demand is excess. So OEM has the chance to implement their supply strategies, but there had been some adjustments already. And this year, there is another trend.

High-end sales, well, the volume is not big. Demand is good. But then the volume growth is not big. Not one company can sell more than 10 million, only a few hundred thousand units, but then people are still working towards this direction. As I said at the beginning, for smartphone, long focus, I think that is the main direction. We have talked about many of such innovations, and we cannot come up with innovation from nowhere. So when we talk about innovation, definitely, it must be aligned with customers' needs. At the same time, [indiscernible] the company needs among key customers. For A company and H company only they can do some customized and personalized work perhaps. So towards the high end, there will be more new cases coming out. The high end will be -- if the high end is profitable, then everybody can get some share of it. So right now, the situation is, as I described just now.

Next question, please.

Good morning I have a quick question on foreign exchange. In the first half, there were turbulences in foreign currency exchange. But you did a good job in smoothing out the turbulence. Going forward, if RMB will continue to depreciate or if the trend turns around, what impact do you foresee on your company financially?

So this moment, if RMB continues to drop, it will pose some [indiscernible] our company. There are 2 reasons. First of all, we issued USD 400 million in bond insurance. So we use this to replace part of the bond insurance we did before. And we borrowed a loan of USD 200 million from local bank. So that's to replace old debt with new debts. As this is liability, RMB depreciation will lead to realized loss [indiscernible]. When we procure core components like CMOS, a lot of them will come from overseas markets. So it will post some challenge on foreign currency exchange loss. But with the business development in vehicle and XR and also in smartphones because we are taking more market share from foreign peers going forward, that's why a dollar would take a much bigger share in our revenue. So the RMB depreciation will see a dwindling effect. But internally, we would say that our job in ForEx control wasn't very good. And in the second half, we could improve on that.

Because of time, we will now take the last question.

I am Shanghai. I have 2 questions. First question is about GP margin. in the second half for handsets, there may be improvement. But can you share with us the exams of improvement, including modules lens sets and then for vehicles, lens sets, just now you said GP margin is stable. For vehicle modules, GP margin and trend, can you share more details?

And my second question is about your overall business segments. Handset right now is a bit soft and weak, vehicle growth is better, for non-handsets apart from vehicles-related business, can you give us some details of its current situation? So bottom line [indiscernible] can let us know. Thank you.

GP margin for lens sets and camera modules. The direction won't be a problem. Definitely, in the second half, there will be an improvement from the first half. And it is difficult to work out the actual exams of improvement. There are 3 major reasons already presented. I won't repeat the points. but we will try our best to cut costs and expand revenue. That is something we can put in effort. We will focus on that, and we hope to achieve a good answer.

For vehicles, well, vehicle's lens sets, it is stable for GP margin. And then for modules, it is much better than handsets modules. We think that vehicle module product line -- well, we achieved CNY 1-odd billion, up a lot year-on-year, but because unit value is high and then for product structure, it is richer for 8 megapixel, the share is quite big 50% already. So can out structure will change ASP and GP margin. There are two points that are certain first, GP margin comparing with handset module will be much better. And in the future, the same trend. GP margin fluctuation will not be like handset because competition is intense and so on where volatility is bigger. So for vehicles, volatility will be smaller because it involves vehicle safety and regulation and compliance.

Apart from vehicles and handsets, you want a breakdown of our sales revenue that is quite clear already. We have to look at XR, VR and AR. This year, first half is only 3.3% in share. But in the second half, when our major overseas customers start to increase volume, then the volume growth in the second half will be bigger. So no matter whether you talk about the main lens sets and modules, overall GP margin will be quite good. It won't be worse than handsets, it will only be better.

This year, the VR industry is not good, but then we believe that for the whole year, VR related revenue growth will exceed 20% year-on-year. So that is about VR. And then robotic vision, there are a lot of industries involved. And I think our [indiscernible] need to work hard and we need to grab more orders from different industries. Profit -- share of profit right now is not very big, but then this industry sees a lot of upsides. So when -- apart from vehicles and VR, robotic vision is also an important source of our revenue growth. Thank you.

Thank you very much for your questions. We will conclude our meeting here. Thank you for your participation.