Good morning. Welcome to Sunny Optical Technology 2023 Annual Results Briefing for Investors.

I'm Jin Jing from Product Harvest [ph]. On behalf of Sunny Optical, I'd like to thank you for your attention and support to the company.

First of all, I'd like to present to you the management of the company. We have Mr.

Mr. Ye Liaoning, Executive Director and Chairman of the Board; Mr.

Sun Yang, Executive Director and CEO; Mr. Wenjie Wang, Executive Vice President and Company Secretary.

Ms. Wong Pui Ling, Investor Relationship Director and Joint Company Secretary and Ms.

Liu Yanfeng from Investor Relationships as well. Now, we would like to kick start the briefing and the presentation material has been uploaded to the official website of the company.

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

Good morning, investors. On behalf of the group, I'd like to present to you the 2023 annual results of Sunny Optical.

I would like to first thank you for your participation and listening. For the year 2023, we have make lot of efforts within the group, for the vehicle lens sets and handset lens sets and handset camera modules we have achieve good growth.

However, as we know into 2023, the overall shipment for smartphones have decreased and for handset lens set and also handset camera modules have been downgraded for 2023. So with these two negative factors, our revenue reaches RMB31 billion down by 4.6%.

Gross profit RMB4.59 billion down by 30.5%. Profit attributable to owners of the company RMB1 billion, down by 54.3%, earnings per share down by 54.3% around RMB100 cents.

So, this is for 2023, we have seen growth for some business and some business have seen just slow development. Smartphone segments have been lagging behind in terms of the revenue and for 2024 we are seeing the application of AR modules in handsets for it will drive the consumer demands, so that's why we'll talk about in terms of HOS and HCM we have seen a light at the end of the tunnel.

So, this a general introduction of our performance. And next I would like to go through the expenses and spendings.

We will say that is quite normal, but we have seen 12.6% of increase for the total operating expenses. And we have seen gross for selling and distribution expenses, it's very easy to understand, because we have seen the lifting of the pandemic restrictions and we have a lot of customer and client visits.

And for other expenses, they're well under controlled. Into 2024 we expect that the expenses ratio would be around 12%.

And we hope to keep it under 20%. So our 2023 the number was 12.6% and the main increase lies in the selling and distribution expenses.

And next is about other operating indicators, the current ratio 1.7 times operating gearing ratio went down and it is still positive and Mr. Ma will give you more explanations later from the CEOs point of view, I will say that the inventory turnover days AR turnover days as well as the AP turnover days have been quite normal for 2023.

We have seen a very normal collection from the client side, we might have seen some structural issues and our CFO would give you more explanations, but in terms of the operations, AR AP and inventories have been performing quite normally. For gearing ratio stands at 11%, ROE went down to 5%.

Our CapEx was RMB2.5 billion. For 2024 our CapEx of would be around RMB3 billion RMB, which includes RMB100 million -- for RMB1 billion for VR and AR, especially for AR and for RMB500 million, which will be invested in the handset lens set, upgrade mainly targets at the major global clients.

And another RMB500 million will be invested for motor or actuator capacity expansion. And for vehicle lens set and vehicle lens modules around RMB100 million respectively.

And the rest would be invested in the production base construction in Vietnam. So that's the guidelines for the capital expenditure for 2023 which would be around RMB3 billion.

So, this page shows the revenue contribution breakdown, as you can see that in the past years, our breakdowns have been quite balanced for the handset related products as you reaches 61% from 78.9% and 70.1% from two years ago, and our vehicle related products reaching 16.7%. So, this is a very good growth momentum.

AR VR related products stands around 7.2%. So as an optical expert, our products in terms of the applications are more balanced and more solid.

This page is of high interest to you I believe, which is about the gross profit margin and also the gross profit margin by BU. And here you can see that the overall gross profit margin that went down to 14.5%.

So group for optical component 28.4% up to electronic products of 5.5%, Optical Instruments quite stable 41.2%. So 28.4% for optical components.

Actually includes handset lens set, vehicle lens set in combination for Optoelectronic products 5.5% includes a handset lens set as well as vehicle lens sets, and AR VR sensing units and lens sets. So I would like to emphasize this point, so that it won't be very confusing when I talk about the guidelines for different divisions.

When we talk about the overall expectation for 2024, we won't be too optimistic, but as I have mentioned, we have seen some good signs we have seen some light at the end of the tunnel and that's why we have given some guidance. First, we believe that the gross profit margin for 2024 will increase we have three major products for handset lens set, the gross profit margin would reach around 20%, which is an improvement compared to 2023.

Secondly, our major profitability contributor is vehicle lens set. The gross profit margin for 2024 would remain stable at 40%.

The biggest revenue contributor handset camera modules targets a gross profit margin of 5%. So these are the gross profit margin guidance for different business units and for the whole groups.

Next, let's take a look at our breakthroughs in R&D and operations. First let's first talk about the vehicle sector, on the left hand side you can see the vehicle lens and cameras, I would like to talk about four major highlights, the first one is quite interesting.

We have completed the R&D of a 70-megapixel vehicle lens sets, but it's consists of a telephoto lens set and also a 7-megapixel front sensing vehicle lens sets. So this is a two in one lens set, it can reduce the cost of the clients which prepare for Level 3 autonomous driving.

So you can have a wide vision and also the telephoto lens set into one module. And we have achieved a breakthrough for hybrid lens set, which can also help us to reduce costs for the vehicles.

It can help popularize Level 3 autonomous driving. So we have completed the R&D of 8-megapixel hybrid in cabin monitoring vehicle lens sets.

The highlights make us very proud. We have obtained the largest designated project on 8-megapixel vehicle modules.

This is a milestone for us. A designated project on 8-megapixel vehicle module, therefore highlights as the designated projects on compact DMS.

But of course, we have a third party partners. So includes half were a hardware as well as software and algorithm and we are one of the major contractor for this project.

So, this is a very successful project for hardware and software. And there are many other achievements in vehicle sector.

There are several parts, first, we have a mass production of the three lighter project and as you know that we have been producing AR HUD, but last year we focus on high end DLP AR HUD module. And for smart headlamps and dynamic headlamp smart headlamp major directions for the current vehicles and we have must produce the lens sets and also modules for the smart headlamps.

So, these are the achievements that we have made in the vehicle sector. And we have mentioned that we have continued to work on the prism lens set as well.

Next I would like to talk about XR sector. I would like to share with you two aspects.

The first is that we have obtained the largest the -- we have become a preferred main solution for reference design for the next generation mainstream platform of a renowned platform provider. And for AR and VR in the future, the miniaturized camera will be in high demand and at the same time it needs to have low energy consumption and that's why we have developed a series of cost effective miniaturized packaging technology which will be applied it to all series of VR AR visual modules.

And for robotics, we are waiting for the train to come. And we believe that this is the main driving force for robotic visions.

We have mass produced the recognition modules applying palm vein to algorithm and this is a self-develop algorithm and this will be applied to intelligent door locks in Chinese market. And secondly, we have mass produced RGBD modules for robotic vision.

And the main highlight is our in-house algorithm as easy and it will be applied to the service robots Lastly, I'd like to talk about smart phone sector. For handset lens sets, we’ve focus on the mainstream product.

So we have mess producer handset lens set with large image size and variable apertures for main cameras. And secondly, for telephoto lens sets, we have a mass produce periscope handset lens set with internal focus in the dual grip, it is autofocus.

This technology can also be migrated to zoom function. And for modules for handset cameras, we have mass produced handset camera modules with large image size variable apertures and OIS and we have also mass produced 180-megapixel periscope handset quick camera modules.

For telephoto cameras, the megapixels is usually quite low and this time we have mass produced 180-megapixel periscope handset camera module which is a breakthrough. And we have mass produce handset camera modules with large image size of 1 to 1.3-inch base on the integrated design and is quibble with our self-develop OI as module so, this is a high end product that combines the lens set actuator into integration.

And in optical instrumental sector, there are two parts, intelligent equipment and microscopes. So for intelligent equipment we have completed the R&D of handset chip component in specialty equipment.

We have been using our self-develop AI modules. The deep neural network might not be applicable to all products and that's why we have developed in-house the AI models and combine that with internal image algorithm.

And I believe this will give us a lot of opportunities for domestic production for lots of products. And for microscopes we have mass produced light morphological scanners and we have also mass produced circulating tumor cells scanners.

So it can help us to identify the mutations of tumor cells. And we have mass produced a full series of semi apochromatic metrological objectives was our long working distance objectives, a core component in microscopes.

So here are the highlights for optical instrument sector. Next, I would like to talk about the patterns.

In 2023 we have added 5,111 new patterns among which 2290 invention patterns. So in terms of the number and quality of our patterns, we have seen great progress in 2023.

Among the 5000 new patterns, most of them are for our pipeline projects for example in vehicle LiDAR XR and robotic visions Next I would like to share with you the shipment volume of our vehicle lens set, handset lens set and handset camera modules. For vehicle lens sets the shipment is quite ideal, in 2023 the shipment was around RMB90 million up by 15.1%.

So what is our shipment guideline for vehicle lens sets, the shipment growth is expected to be 10% year-on-year. ASP, we expect it to be stable.

So this is for vehicle lens sets. The next part is handset lens set, handset lens set last year, the volume came down a bit, it was down 1.8%.

So we shipped around 11.7 million units have lens sets. And this year our guidance is on the right, you can see some high end picture, it is not our loss market share.

In fact, we have lowered the overall supply. And so last year, the shipments or the guidance is we hope to increase by 5%.

For handset lens sets, most of the growth will be from high end customers. ASP will be able to increase.

So that is about handset lens sets. For camera, last year there was growth.

Because the Samsung Technology used to be low and in Mainland China, we have done a lot of work. Overall speaking for camera last year, there was growth by 9.8%, shipment was 567,000 units.

So here, you can see the right hand side charts. For 2024 guidance, we hope that for camera in terms of volume, it will be flat, more or less the same as last year.

But we would like to adjust structure. We hope to produce more difficult items, for example, long focus, large image size modules.

And then for actuators we'd like to enhance our capabilities. Through such efforts, we hope that gross profit margin and ASP can go up.

So that is our basic views about handset cameras for 2024. Volume is not our most important goal, we'd like to adjust structure so that we can enjoy better profitability.

That's our view about camera. We don't have much updates about our global layout or overseas developments in China, India, Vietnam, basically mainly in Vietnam.

So the progress has been quite smooth. I have not much to update you on that.

Part three, medium to long term strategies and outlook. First of all, vehicles.

You are all interested in that for vehicles. There are two main points here.

First, we're of the view that for vehicle camera vision, so for the vision part in the coming 10 years, it will be in a rather stable and sound growth cycle. That is our first viewpoint.

Our second thought is we're of the view that for vehicles when they're migrated towards autonomous driving, I think vision is the most important point. So FSD, you can see more and more from the reports the importance of vision, and it is also an opportunity to win.

So for camera, it is mainly for sensing. So when it comes to ADAS it is no longer absolutely correct.

So basically you have to go up to level 3 or even higher level for that direction. But for sensing type cameras they will become more and more important.

For sensing camera, now we can clearly see two directions first, the pixel needs to go up further. We need to see more clearly and farther down.

So that is a clear direction another direction is hybrid. You need to make use of the camera over a larger scale and you need to lower your costs while performance doesn't change you need to lower cost.

So there is no doubt that well of course we are good at the hybrid technology that is a big direction. So in the vehicle area, these are the two main points.

And then for things outside cameras, well, of course, when you go up to level 3 or above, well, the standard can be high or low and they can be strong or weak algorithm, there are things that you may not be able to AI and so there's the need for other auxiliary or supplementary products, for instance, LiDAR, LiDAR microwave, LiDAR and so on, these are some directions that we will empower the industry. And then HUD there are contentions about HUD in the future, is it true that you can replace HUD by wearing a pair of glasses, but then now HUD is still quite good business that we are following up.

And then another thing is headlamp in vehicles, and also ground projection lamps, these are also good directions even if you have reached level 3 or above the head lamp or round projection lamps will still be promising. So, these are areas that we are working, working out some progress has been good.

Next, the first main direction in the vehicles sector, what work are we carrying out? Well, we have made some achievement in the first direction, but we think that in the future this will be very promising.

So XR, we think that this is going to be worth a RMB1 trillion in terms of market scale, and then within XR especially within AR optical palm cost will be very, very high, it will far exceed palm in smartphone, it will far exceed palm in vehicles. So in AR the optical palm will be costing a lot.

So, here we are doing three things, first, I think you will all clear about it. In summary, we have done perception and interaction camera.

So for example, eye tracking, facial tracking, 6D camera, 3D camera, these are things that we have been doing a lot and we are good at it. And then the next thing is we are also strong in pancake.

In the future pancake is going to be a platform it is not only a pancake, apart from pancake, there will be a lot of optical content, it has to be connected to a pancake for R&D. Now, we are working with customers in this already.

Another thing is for optical engine in AI we have to we have LCOS micro LED and other areas. So, we are leading in this area.

Another direction is optical waveguide. We have made much investment in this area.

So, AR display area or XR display area we are very strong from here to here. We want to assemble these or group these together and then there are also some other chips VID1 VID2 chips, all these will be combined together.

And finally we will be reaching a VTP this is just very natural from AR to a VTP because when it comes to many optical components and modules they are produced by us. So for optical components and module assembly or aggregation for those producing these components and modules to do the assembly and aggregation it is just natural.

So, this is a total solution in the AR area. So, for our internal work, here we are trying to do some extension work and we do look forward to the explosion of this market.

Finally, I would like to talk about innovation innovations in handsets. Of course for large models, when they are put in handsets what kind of requirements will there be for optical image.

Now we are still deliberating and examining with our customers. I have not listed all these points yet, but will there be some new requirements?

I don't know. I am still doing some studies with my customers.

Now in vehicles in order to achieve FED, we are clear already we need long view clear view and we have to make sure that there would be some good functions when we assemble the lens set modules. Then we have to clear all the dirty parts.

Now, when large models are placed in handsets, what will be some additional requirements, right now, one natural direction is hybrid, hybrid is a direction. Second aperture, you will see large aperture small apertures with different use scenarios.

And then sensor shifts OIX. So the lens set will become heavier, but you have to balance it with the power consumption.

So, it has to be light convenience with sensing function and then inner internal focus telephoto. So, for telephoto, there will be internal focus between groups.

This can solve the current focus problem. And it can be better for zooming.

So that is one direction. So, these are the three major areas, hybrid, variable aperture, telephoto with internal focus.

And then ultra-thin and so on these are some of the points that we're doing to satisfy requirements. Well, three major product lines and our expectations.

So, now, I'm going to talk about our ESG work, it is quite good. For MSCI rating in 2023, we have done some upgrading.

Now, we have reached AA, so that is the outcome of our work. And then for green development.

Last time I reported to you that we have issued a 3.5 year USD400 million sustainability linked bond. So in Asian technology manufacturing industry, this is the first of its kind.

And what is our target for 2024, there are two targets first, we use green energy, the proportion of green energy should be higher than 2023 by 14%. So, this is about use of green energy.

And then for SCOPE 1 and SCOPE 2 greenhouse gas emission reduction that has to decrease by 10%. That is the emission intensity should decrease by 10% versus 2023 in terms of greenhouse gas.

So this is about SCOPE 1 and SCOPE 2. So in terms of green sustainable development, these are our main goals for 2024.

Okay, so the above is my presentation of our operations in 2023. Thank you very much.

Thank you for the presentation. Now we will start the Q&A session.

If you have any questions, please feel free to raise your hand. And please also state, your organization and your name before you raise the question.

The lady on the first row.

I'm Cherry Ma from Macquarie. I have two questions.

So first question is about the CCM guidance. The smartphone market expectation is around 1% to 2% growth.

And for us our expectation is flat. So from product mix perspective, do we mean that we will give up the less profitable business and focus on the medium to high end and that's why our growth expectation is not as high as the market?

And the second one is about customer groups. Huawei has returned last year.

So that's why our contribution was not so high. What about this year?

What is our strategy targeting Huawei as a client?

First, the growth for smartphone 1% to 2% percentage point has been the rumor, but it has no conflict with our expectation which is flat. But the second point that you mentioned was quite right from the camera mode handset or camera module perspective it is not possible for us to expand our production capacity in the larger scale.

So our limited production capacity will be put into the more profitable and products with higher value add, so your understanding is correct. But I'm not saying that we would reject all orders, but profit would be one of the key consideration and we also focus on cash flow.

So, our practice I believe is makes a lot of sense. And secondly, we have a great positioning, I can review some information to you here.

For Mate 60 or P70 the cameras suppliers are from Sunny Optical, but this is sensitive information. In terms of the camera modules the top projects number 10, 10 means high end.

So we are involved in such projects and the person responsible for handset and camera module visited H company so, we welcome to return of H company. And our cooperation has been running quite well on the basis of compliance of course.

The second question is similar to CCM. So, in terms of handset lens set, we expect a 5% of gross for 2024.

In terms of pricing in the second half of last year, the clients are more willing to pay more price but what about it this year? Can you please share with us the projection for gross profit margin, you said to 20% per handset lens set, but for competitors from Taiwan, 50%?

So in terms of product mix, is it similar to CZM, profit will come first. And can you also please share your comments on Apple?

We have already shared with you that we expect improvement for gross profit margin for handset lens set. We will also see ASP improvement and of course we will see customer mix improvement and as I have mentioned we have quite good share for H company.

And we are also number one in terms of this supply to the Korean handset company. And for product mix, we also want to focus on high end product lines.

We're number one for handset lens set, around 30% of the global market share. So sometimes we cannot reject all orders because we are a large contributor to the market share and our product supplied will always be customer centric.

But for handset lens sets, the adjustment might not be as flexible as handset camera modules. But of course, we are transitioning to high end handset lens set and we will stick to this positioning on the basis of maintaining our global number one leadership position.

On that basis, we will make some product makes adjustments. For American clients, the overall progress is quite ideal.

For the shipment into 2024, I believe that it will be on the increase side.

Next question please. Thank you.

Thank you, management. I am Gina [ph] from Citi.

Concerning GP margin, I would like to clarify. Last year in the second half it seems the GP margin improvement for Optical is quite significant, for vehicles if it remains stable more or less the same as first half then that means for your handsets there is a good improvement for handsets.

Now in 2024 were last year in the first half is over 20%, perhaps we have done the calculation wrongly in 2024 for above 20% this should be rather objective, you may have considered some customer problem so that you will give a stable improvement you will see a room for stable improvement. So that is GP margin about handsets?

That's my question. And then on the module side, GPM.

This year, you expect five percentage points. Last year, how was the situation in the second half for vehicle CCM would there be some impact for AR/VR.

Let's say if you do some aggregation or assembly or service business then will there be lowering of your GP margin. How was the change?

Now for handset GP margin handset lens sets GP margin, last year the average handset gross margin was 15% roughly in the first half gross margin was lower 10% to 15%. In the second half, there was improvement but we did not exceed 20% but definitely we were above 15%.

So for the whole year average was around 15%. So, last year all the way to this year we seize the opportunity of improvement and product mix towards the high end site we hope to achieve 20%.

So, this is a slow or gradual recovery process. For modules, first of all for vehicles.

Now there are a few parts, as explained just now, handset modules and then vehicles and three, VR related modules these are the modules. So, GP margin is the worst for handset modules, the reason is related to the industry and competition as a whole last year.

So gross margin did not perform well is lower by 5%. That's for the whole year.

And we hope that this year as explained just now, this year through improving the product mix we can control product mix and total volume so that ASP can increase significantly that is our direction. For vehicle modules GP margin this year should be more or less stable as last year.

In 2023 for VR related modules as you know we did not sell quite well last year. So there was a decrease, GP margin did not perform well.

But comparing with handset modules is still much better. So we expect that in 2024 for vehicles modules and VR related modules gross margin will not pull down the overall Optical business GP margin, if sales performs well then there will be some help.

But the main points is handset modules GP margin recovery is more important. We hope that the whole segment gross margin can be more -- can increase by 5 percentage points.

[Indiscernible]. I have two questions, so first question is about a vehicle.

So last year, our revenue has reach RMB5 billion. So for the lens and non-lens business what are the breakdowns and we will see lots of changes for vehicle sector.

There are lots of new products launch from clients and new features. So it is very easy for us to forecast that was for vehicle lens but what about other vehicle related product categories?

I forgot to mention in 2023 our vehicle lens set reached around RMB1.5 billion of sales revenue around -- sorry RMB1.6 billion. 2024, we expect to have RMB2 billion of sales for vehicle lens sets.

And you mentioned MI [ph] company’s vehicle launch and we also supply them with our vehicle lens sets. Our AI 2d light arm and headlamps, the base is quite small and the adoption rate is quite low.

So in the coming two to three years, I think the major growth driver would be the cameras and also the lens sets. For some new projects new vehicles, we have been supplying to them in a very ideal percentage.

1.6, 1.7 billion sales.

We’re mainly talking about lens sets.

No, I'm just talking about the modules.

The second questions is the second question is about the competition for handset lens sets. As it improves in the last year.

The smartphone makers profit makes a record high last quarter, and this quarter, it remained at a very high level as well. So for smartphones, the parts and phone makers will see a return of gross profit margin.

So the smartphone makers' gross profit will come down a bit but the parts makers' gross profit margin will increase. But it's very hard for us to achieve maybe 10% for the handset or camera modules.

So what do you think?

From the competition perspective for the phone makers, who release their results last year -- yesterday have achieved very good results. And for Oppo, Vivo, they have also performed quite well.

For us, we don't see aggravated competition. For handset lens set and handset camera modules, we all need profit to become more sustainable.

For competitors, we don't see any vicious competition coming from our competitors. For our industry the most profitable period was when the spec was upgrading.

And all the smartphone makers came to me and signed the production agreement with us. But in the past two years is a pity that we have seen it is back, so everybody can make the same kind of products and they all have sufficient capacity.

So that's why for some industries, the suppliers would approach the maker and ask them to set the price. The OEM actually has gained profit, because of the concession from the parts maker.

We're not just talking about optical open components for telephotos, where our focus have been the trend for handset lens set modules. So I believe that for 2024 the market would be more fair than 2023.

Next question, please the gentleman over then.

Thank you, management. I'm Tony Zhang from CLSA.

For handset module so apart from the COP line, there may be other technologies and sectors what are your views about those, right, chip and so on? Can you answer?

Yes, these are two different technologies.

So the technologies are different for these two sectors. If you want to enter another area, then well that technology may not be in use.

I think you are aware of that right? What are you really interested in?

So now you get into this particular segment? What is your progress and plan?

It's more or less the same as last year it is underway. But I think so far I cannot share with you more details but the progress is good.

Just now Mr. Sun, said that last year cash flow experienced some special situation.

So, perhaps Mr. Ma can elaborate.

Then for Optoelectronic segment gross margin in the second half of the year came down, but then the segment profit and operating margin in the second half is quite good for the Optoelectronic segments. So, what are the reasons for that?

Thank you.

In recent years in China credit environment is rather loose, so, the discount rates for bank who knows is very low. So, in the past few years in terms of finance, we make use of this credit situation to do some risk free arbitrage.

Now, when there are no discounting, well, there is cash inflow as a result. So, as a result in ‘21 ‘22 the net cash flow amounted to a big amount.

Then in 2023, well, we maintained a certain scale and that is based on our normal logistics and supply chain management. So, in 2023 we discussed it with Deutsche with -- then we went back to the normal cash flow position.

So, your second question is about our segment profits, segment profits overall speaking, well, that is the whole year number. But then on the half on half basis in the first half comparing with the second half there is improvement, so, that's the result as such.

But for Optoelectronic if you only look at GP margin, this segment in the second half has lower GP margin than first half, but segment profits operating profit margin is higher right. Okay.

Let me explain first as such is now, we explained about GP margin for Optoelectronic handset module is in the second half of last year, there was no clear improvement, for the whole year GP margin was not satisfactory, that's one thing. And then you talked about segments performance and also, this is related to transactions between different departments.

So, this is only for your reference, the number itself may not be that accurate. Thank you.

My name is [indiscernible] from Green [ph] International. I have two questions, the first one is related to vehicle sector.

So, from the OEM perspective, we can see that the overall pricing has been going down. So have we felt any price pressure and the cost reduction on our side can we catch up with the price decrease demand from the OEMs?

And also you have mentioned for the vehicle lens set is expected to reach RMB2 billion, so, the revenue will increase faster than profit, is that correct?

So, we are facing with a lot of pressure especially in the Chinese market, apple to apple, the unit selling price would of course, go down. So, what we are trying to do is to control the cost.

There are lots of aspects that we can work towards the first one is the hybrid lens. So, we hope that we can maintain stable gross profit margin while the costs and price are both going down.

But we will continue to see upgrade of vehicle lens sets from 5-megapixel to 8-megapixel to 10-megapixel in the future. And as I have mentioned that we have mass produce 7-megapixel hybrid lens.

So now we are working on vehicle lens sets for Level 3 autonomous driving and it has higher demands for films and also imaging technologies. So there are lots of rooms for innovation and spec upgrade and I believe that there are lots of opportunities for us to achieve higher shipments and at the same time maintain stable margin.

And in terms of camera modules for vehicles. It will be impacted by two factors.

But of course, we will see some spec upgrade we have obtained several 8-megapixel project which will help us to improve the overall ASP, but of course, great pressure for vehicle sector.

The second question is related to smartphones sector the gross profit margin for handset lens set is expected to improve on 2023 basis, what is the driving force for the improvement, is it the last competition or is it that the spec upgrade? And also the IR modules upgraded would that increase the values of our hardware or will it drive down the cost of the hardware?

And in the long term no matter is back or spec upgrade the values of the handset lens set will that be more stable?

I have mentioned this part before, AI modules will be applied to handset lens and has been quite successful from some cases and now we are communicating with some semiconductor and chips that makers this will be the major trend as good news. First, the consumers would be more interested to buy the new handset models and what is the impact of the AI models on ourselves, we are still researching on this topic, but for traditional AR which focus on image processing, perception and image detection we cannot ignore this part because it would have higher and higher requirements for handset lens sets.

And you mentioned that SOC would be more expensive next year, would that reduce the cost of other parts of palm?

It will depend on the volume and also see if other palms can increase so that more cost can be allocated to imaging parts and certainly is about a telephoto for H company or other companies and another one is a variable apertures. The large size main cameras would definitely need to have variable apertures, otherwise the image would be overly exposed.

So these are the definite trend that we are seeing which is a good news for us and for lens actuator and modules combined can help us to provide more value to our clients. I believe if we can achieve that it will have great impact on our gross profit improvement.

Because of time, we will now take the last question for today. The gentleman wearing white shirt?

Management I am [indiscernible] from BOCI. My question is about XR.

My understanding is that last year the market was a bit slow and this year that will be changed for example Apple MR sale. So in the industry, will there be new changes?

When you discuss with customers what projects are you talking about? And then for this year XR business, can you give a revenue outlook please?

Thank you.

Revenue?

Revenue guidance how much is it?

Overall revenue will be up by 15% hands, but I think it will be more than that because flexibility here is big. And for the new situation right now, the information that we have on hand is that it may be bigger than expectation.

For OEM vendors, well, this is the information from the big OEM manufacturers, so it will be even bigger. Some big Korean companies seizing the opportunities to launch this kind of products.

So, this year, I think in the VR area, and where MR is also VR. So, we believe that we will be able to give you some pleasant surprise.

We will talk about vision pro after it is launched. For companies with higher performance price ratio is like intangible advertising.

So I think that there will be some positive outlook here. And then for smart glass, I'm not talking about those broader lens, but then well, we are talking about large mod model plus camera.

I think shipment has exceeded expectation customers increase to the orders constantly. And then for Apple Vision Pro launch, I think together with AI large model use in these areas.

I think there'll be some nice surprise in this area. We have done more preparation than vehicles lens set area.

So as I said in my presentation, so we would like to be able to seize this opportunity to achieve better results.

Okay. Thank you for your questions.

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