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Wang Huang: Good afternoon, investors. Welcome to the 2025 Interim Results Announcement Conference of AAC Technologies. I am Maggie Wang, the host of this event and Director of Investor Relations at AAC Technologies. First, on behalf of the Company, we would like to thank you for your interest in AAC Technologies. Next, please allow me to introduce to you the management of the Company who are joining us today: Mr. Benjamin Pan, Executive Director and Chief Executive Officer of AAC Technologies; Mr. Kelvin Pan, Executive Vice President of AAC Technologies; Ms. Dan Guo, Chief Financial Officer of AAC Technologies; Mr. Yunjian Duan, Chief Executive Officer of AAC Technologies; and Mr. Tingjia Shi, Senior Vice President of Strategy of AAC Technologies. Thank you for attending. Today's conference will be divided into two parts. First, I will provide an overview of AAC Technologies' 2025 interim financial performance and business progress. This will be followed by a Q&A session with the management. We welcome everyone to engage with the management regarding issues, such as the Company's strategic developments and business updates. The statements made during this conference contain forward-looking information, which represents the Company's assumptions and expectations based on market conditions and the Company's development. If you would like to ask a question, you can raise your hand at any time in the Tencent Meeting Room or leave a message to the host via Tencent Meeting Room. You can keep your hand raised to signal the host. Before asking a question, please introduce your organization and name. In addition, today's conference is bilingual, with English and Chinese channels available. You can switch between channels using the interpretation button in the app. Next, I will present the Group's performance for the first half of 2025. In the first half of the year, the Group's revenue reached CNY13.32 billion, representing a rapid YoY increase of 18.4%. This increase was primarily due to the continued increase in market share of key products. Gross profit reached CNY2.75 billion, representing a YoY increase of 13.9%. The Group's gross profit margin was 20.7%, representing a slight decrease of 0.8 percentage points YoY, primarily due to changes in its product mix, with faster revenue growth in its precision mechanics (PM), optics, and sensor and semiconductor businesses. The Group's YoY revenue growth rate significantly exceeded the three-fold growth rate. Net profit increased by 63.1% YoY to CNY876 million, mainly due to the continued improvement in the profitability of the optics business and the rapid growth of the high-gross-profit business in the PM business. In the first half of 2025, the Group's revenue continued to grow, achieving growth in both quality and efficiency. According to IDC data, global smartphone shipments increased by 1.5% and 1.0% YoY in Q1 and Q2, respectively. As shown in the figure on the left, the Group's consumer electronics (CE) business achieved revenue of CNY11.58 billion, representing an increase several times the growth in global smartphone shipments. Among them, the revenue of electromagnetic drives (EMD) and PM, and optics businesses increased by 27.4% and 19.7% YoY, respectively. In the first half of the year, the automotive acoustics business generated revenue of CNY1.74 billion, accounting for approximately 13% to 15% of the Group's total revenue. In terms of gross profit margin, the overall optics segment saw a significant improvement, increasing by 5.5 percentage points YoY. Specifically, the gross profit margin for plastic lenses surged by over 10 percentage points YoY. The gross profit margins of newly acquired companies in the automotive sector also exceeded the industry average. Cash inflow during the reporting period was CNY2.89 billion, representing a YoY increase of 9.1%. Free cash flow was CNY1.86 billion. Capital expenditure was CNY1.44 billion, representing a YoY increase of 57.5%. Cash and cash equivalents were CNY7.75 billion, representing a 2.8% increase QoQ. The net gearing ratio was 4.7%, remaining stable QoQ. The Group will continue to improve its operational efficiency, and the strong cash flow generated will support the Group's long-term healthy development and innovation. Next, we will share the performance of our various business segments. Regarding the acoustics business, the Group's revenue reached CNY3.52 billion in the first half of the year, representing a YoY increase of 1.8%, with a gross profit margin of 27.2%. The Group continued to lead the mid- to high-end market with its master-level SLS and coaxial speakers, with shipments exceeding 17 million units during the first half of the year, which marked a YoY increase of nearly 40%. The Group also debuted the industry's thinnest speaker, featuring a thickness of just 1.4 mm per unit. With more mid- to high-end projects ramping up in the second half of the year, the acoustics business' gross profit margin will steadily increase. In the automotive acoustics business, the Group achieved revenue of CNY1.74 billion in the first half of 2025, representing a YoY increase of 14.2%, with a gross profit margin of 23.9%. The Group has secured a flagship SUV project for a domestic new energy vehicle (NEV) brand, featuring an audio system with 32 speakers, 40-channel amplifiers, algorithms, and tuning services, to create an ultra-luxurious automotive acoustic experience. The Group's full-stack automotive acoustic system debuted at the Shanghai Auto Show, showcasing high-performance speakers, self-developed amplifiers, and innovative algorithms such as AI music track separation, creating a comprehensive driving acoustic experience for customers. Furthermore, the Group announced the acquisition of Hebei First Light Auto Parts in the first half of the year. Its product lines include smart microphones, E-call microphones, and road noise cancellation (RNC) sensors. Smart microphones are now available in all major vehicle models, further strengthening the Group's strategic positioning within automotive acoustic system solutions. In the first half of 2025, the optics business continued its rapid growth, with revenue reaching CNY2.65 billion, representing a YoY increase of 19.7%. Shipments of plastic lenses and camera modules both increased YoY, accompanied by continued price increases. The optics business achieved a gross profit margin of 10.2% in the first half of the year, representing an improvement of 5.5 percentage points YoY. Let us look at the situation in the first half of the year by the three major business lines. First, regarding plastic lenses, shipments of 6P and above plastic lenses exceeded over 18% of the total shipments. High-specification 7P lenses saw stable shipments, and we secured more orders for mid- to high-end plastic lenses. Second, in terms of camera modules, unit prices have further increased thanks to the rapid shipment of mid- to high-specification products. Module revenue increased by over 20% YoY in the first half of the year; camera module shipments increased by 5% YoY in the first half of the year, further increasing market share, especially with the increase in shipments of high-specification products. Among them, shipments of modules with over 32 megapixels accounted for over 34% of the total shipment volume, representing an increase of over 3 percentage points YoY. The 108-megapixel main camera modules for several of Android customers' main models have successfully begun mass production, and sales of OIS module exceeded CNY800 million, representing a YoY increase of nearly 150%. Regarding hybrid lenses, the Group's WLG product line achieved a milestone breakthrough in project execution in 2025 and has been widely recognized by customers. We will provide a detailed introduction later. Next, let us take a look at the combined distribution of EMD and PM. In the first half of the year, the revenue of this business increased by 27.4% YoY to CNY4.63 billion, mainly due to the continuous increase in deployment of products such as horizontal linear motors, innovative side buttons and smartphone metal casing in customers' mid-to-high-end models. The gross profit margin was 22.9%, basically the same YoY. During the reporting period, the Group's new businesses such as side buttons and crowns expanded rapidly, opening up new revenue growth. At the same time, the Group's innovative and customized breakthrough SuperSlim Engine, with a thickness of only 2.33 mm and a weight of only 2.25 g, has become the thinnest X-axis linear motor in the smartphone industry. In the field of PM, the Group achieved breakthroughs in all three of its business segments. First, in the heat dissipation segment, revenue reached CNY221 million in the first half of the year, representing a YoY increase of over 45%. Leveraging its superior heat dissipation technology, the Group achieved rapid deployment of its products in flagship models for global top-tier customers. Regarding smartphone metal casing, the Group kept a high and stable supply share within customers’ mid- to high-end models and foldable phones, benefiting from the penetration of smartphone metal casing in the sunken market. Regarding laptop enclosure, revenue in the first half of the year reached CNY713 million, representing an 18.4% YoY increase, primarily driven by the continued growth of high-value new projects. Finally, let us focus on our sensor and semiconductor business. In the first half of the year, this business achieved revenue of CNY608 million, representing a YoY increase of 56.2%. This was primarily due to the Group's shipments of high signal-to-noise ratio microphones to overseas customers and the overall growth we saw in our business.
Tianzi Fu: I am Tianzi Fu, an analyst at Everbright Securities Overseas. First of all, congratulations to the Company on its solid first-half performance. We see that revenue and profit for the first half of the year are higher than we expected, which is very encouraging. However, some investors noted that non-recurring gains contributed significantly to profits in the first half of the year. Could you please explain the core factors that led to the above-expectation profits in the first half of the year? What are your thoughts on the subsequent impact of non-recurring gains and losses?
Guo Dan: First, the non-recurring gain in the first half of the year actually came from the completion of our acquisition of PSS. This is essentially a fair value gain, but it stems from the fact that the price we paid was lower than previously expected, hence we completed the entire transaction at a very reasonable price. Our decision to complete the transaction at this time reflects the management's confidence in PSS's future business growth and the opportunity to achieve synergies with our group earlier and better. Therefore, this is a one-time adjustment and will not impact the second half of the year. You just mentioned that both our revenue and net profit showed strong growth in the first half of the year. Let me provide you with an overall full-year financial outlook for the Group. Our overall revenue growth in the first half of the year was 18.4% YoY. We are very confident that the YoY growth rate in the second half of the year will remain high at no less than the 18.4% in the first half of the year. This is the first point, our guidance on revenue growth. Secondly, last year, the Group’s overall gross profit margin was 22.1%. While there were some impacts in the first and second half of this year, especially with many new projects ramping up in the first half, as you can see, the gross profit margin in the acoustics segment was actually slightly lower than the same period last year. However, as new products, especially high-value ones, begin to be shipped in the second half of the year, we are confident that our gross profit margin will continue to rise. The gross profit margin of the acoustic segment, for example, will not be lower than last year's overall gross profit margin, which was approximately 30.2%. Regarding the Group, overall, our gross profit margin will also be no lower than last year's overall gross profit margin, which was 22.1%. I hope this provides some clear guidance.
Tianzi Fu: This guidance is very encouraging. The second question, which is of great market interest, concerns the optics business. We noted that the improved profitability of the optics business was a significant highlight in the first half of this year's financial report. The optics segment had already turned positive in Q4 of last year, and we saw such profitability continue and solidify in the first half of this year. Therefore, we investors are very concerned about the sustainability of this growth. We understand from industry sources and the products that this year is the first year of large-scale mass production for WLG. Could you provide us with an outlook for the next two years on WLG's penetration rate projections and the approximate turning point for scaled profitability?
Jack Yunjian Duan: As you all know, we have begun large-scale mass production this year, and we expect shipments to exceed 10 million units. Of course, we are also increasing our internal production. Based on our current projections for next year, we should see growth of over 50%. You mentioned WLG breaking even or becoming profitable, and I believe that will happen around this time next year. During this year's major mass production, we have achieved overall process yield, and the WLG yield is very stable. The WLG yield has now reached over 80%, realizing the profitability of WLG single lenses. Given our current scale, we anticipate that with increased mass production in the second half of this year, the gross profit margin of our glass-plastic (G+P) hybrid lenses will exceed that of plastic lenses, reaching approximately 35% for the full year.
Tianzi Fu: Finally, I would like to ask about the Company's long-term strategic planning. Our analyst team has covered AAC Technologies for over a decade now. As we have witnessed the Company’s growth in the past few years, we are incredibly confident in its early deployments in CE and its future forays into automotive and robotics. In fact, from our observation, the Company boasts a wide range of products, with extensive experience and strong market advantages in acoustics and optics. I would like to ask management, what are the Company's core strategic directions and development plans for the long term? For example, how will it leverage the synergies of its platforms? And what are the Company's general prospects for growth drivers and profit structure over the next few years? Could you share some details? Company Representative I think first of all, we have done a lot of deep cultivation of capabilities and technologies in the smartphone industry and CE industry, so we will continue to optimize our layout in the smartphone industry in this regard. I have seen several recent trends standing out in the smartphone industry, and they are very helpful to us. The first trend is AI. As we can see from the performance of the microphone and sensor business unit in the first half of this year, we expect the microphone business to double from last year's approximately CNY700 million to between CNY1.4 billion and CNY1.5 billion this year. This growth will be primarily driven by our high-end microphones, which are also a key enabler for AI phones. After all, AI phones have many fundamental requirements for voice interaction. This is the first point. Secondly, we recently developed some heat dissipation products for high-end overseas customers. We currently anticipate that these high-end heat dissipation products will be in mass production by the second half of this year. Compared to last year's approximately CNY300 million in the total sales of heat dissipation products, this figure will at least triple this year. In fact, across all AI use scenarios, the value of our heat dissipation products is highly beneficial to the Company's overall growth, especially given the relatively stable smartphone market. In addition, we see a trend toward ultra-thin phones, especially foldable phones. This trend presents significant challenges for our acoustics, motors, and mechanical components. These challenges will ultimately create more opportunities for our higher- performance, higher-energy-density products to perform in the market. This will also enable continued improvement in the ASP of our modules and core components for the smartphone industry. We expect that this year, while maintaining stability, we will realize continuous growth in the revenue of the acoustics segment and double- digit growth in the revenue of the motor segment for Android devices. We believe these trends in the smartphone industry present opportunities for us. Another area we have focused on significantly over the past two years was our strategic deployment in the automotive sector. As we have acquired PSS last year and Hebei First Light and Pioneer this year, our deployment in the automotive sector has been comprehensive. From high-end speakers to system amplifiers, core software algorithms and sensor modules required for our final algorithms, we have already made a comprehensive deployment from the perspective of AAC Technologies’ capabilities. Furthermore, in terms of this year's revenue share, automotive already accounted for over 10% of our total revenue. We believe that based on this capability layout, we can transform these various components into modules and even systems. This year, we have already secured a high-end branding system from a domestic emerging player. This branding system will redefine the best of domestic audio systems. This system already has over 30 speakers, and the total pricing and secured amount are substantial. We will share more information with our customers later. So, from this perspective, we have significant room for growth in the automotive sector, primarily due to the value increase of the entire system. We will expand our product offerings from complete components to system integration, and even to branding systems. Looking further ahead, we are focused on AI and the new devices it brings. Robotics, a hot topic in the market, involves numerous motors and sensors, for which we are actively communicating with domestic and international clients and making deployments. We believe robotics is a long-term market opportunity, so we are actively working on research and development (R&D), product deployment, and capability deployment. I believe that over the next two years, especially from next year to the year after, AI devices, as well as AR and VR devices, will create new opportunities. AI may also drive new demand for wearable devices beyond smartphones, and we are actively making deployments in this regard with both domestic and overseas customers. In the future, these devices may not only be smartphones, but also standalone AI devices, directly interacting with large-scale AI models both domestically and overseas. We believe these projects and opportunities will be launched and mass-produced next year.
Wang Huang: Next, we would like to invite Ms. Xia Jun, Chief of Guosheng Securities Overseas, to speak.
Jun Xia: I have three questions. First, I would like to follow up on our gross profit margin. Optics has seen significant growth, but we have seen some fluctuations in the gross profit margins of acoustics, including automotive acoustics, and microphones. Could you please explain the reasons for this, and what the long-term trend looks like? Company Representative I think we can look at this from two perspectives. The CE industry as a whole does exhibit a certain degree of seasonality. From what we have seen in the first half of this year, especially for our microphones and sensors, while microphone revenue has grown significantly, gross profit margin has declined compared to last year. This is primarily due to our focus on ramping new products into mass production in the first half of this year. Therefore, this ramp-up, combined with overall market shipments in the first half of the year, will make it less balanced in the second half of the year. We estimate that, of the full-year revenue, the revenue in the first half of the year will likely account for 40% and 60% in the second half. This will result in slightly lower gross margins for both acoustics and microphones in the first half of the year. Once these new products enter mass production in let’s say July and August, our gross profit margins will return to a healthy level. Based on the overall pace of our business and customer collaborations, we believe that the uneven gross profit margins in the second half of the year will offset the first half's performance. From the perspective of the automotive sector, we believe this is a stable process. Although the overall automotive market is experiencing some short-term volatility, following our deep acquisition of PSS, we have recently been helping them expand further in the domestic market. Therefore, we believe PSS's overall gross profit margin from automotive speakers will remain balanced. In particular, we will introduce new products in the second half of this year and next year, which will allow us to have better new product introduced into the Chinese automotive market and contribute significantly to our gross profit margin in the next year or the year after. Besides that, PSS is a very robust business, with very robust collaborations with customers. The intensity of their collaboration with these customers, especially in the depth of new product development, is very high, so we do not have any particular concerns in this regard.
Jun Xia: My second question is about our optics business. From the industry’s perspective, we did see strong demand for our hybrid lenses, which has been a strength of our company. I would like to ask, from the industry’s perspective, what do you think the penetration rate of hybrid lenses in the whole lens market will be this year or three years from now? From the industry’s perspective, is the increase in penetration rate primarily driven by, for example, smartphone main cameras, or will we see an increasing impact from periscope cameras in the future? Company Representative I think we have just touched upon this issue. In terms of G+P hybrid lenses, the shipment volume for one of the flagship models of a major customer this year definitely exceeded 10 million units. As for whether we can eventually scale it up to 15 million units after exceeding 10 million, we may see that this year, based on demand. However, I believe this year's G+P lenses marked a significant change for us. It is available across the customer's entire flagship device lineup, and we are the exclusive supplier. We believe that the changes in user pain points brought about by G+P lenses in main cameras, along with the development of customers’ models, will have a profound impact on the entire industry, and of course the Android system, in terms of user experience or customer positioning of G+P lenses. This is what we are observing. So, in terms of volume next year, as I just mentioned, we are sure to have growth of over 50% – it is very likely to go even higher. Regarding customers’ choice of models, the penetration of 1-inch chips in main cameras in the sunken market seems to be slow, with the 1/1.28-inch format currently being the mainstream in flagship phones. Therefore, our current supply is primarily for 1/1.28-inch deep depth-of-field (DOF) cameras, with a limited supply of 1-inch products. Therefore, in the 1/1.28-inch main camera market, the upgrade of cameras with deep DOF will be slow. While this upgrade will be slow, the user experience improvements brought about by lens upgrades will become mainstream, which is something observable. This year, our G+P lens shipment volume is expected to be around 10 million to 15 million units, and we can expect it to be around 20 million units next year. Whether this number will increase further depends on the overall project and market developments. So, from now on, the trend of using G+P lenses for the main cameras of flagship models or high-end models has gradually emerged. Of course, periscopes are mainly prisms, and the combination with aspherical or spherical lenses to form G+P lenses will also emerge. However, from the current perspective, it will be slightly slower than the application of G+P lenses in main cameras. However, as some models are now starting to use [GS] prisms – or what we call two-in-one or three-in-one prisms – and aspherical lenses are being promoted, this trend will become more obvious in the first half of next year.
Jun Xia: My last question is about heat dissipation. As I mentioned earlier, our high-end heat dissipation product for a major customer is nearing mass production. Looking ahead to next year, will we see a trend of VC (vapor chamber) heat dissipation in these major customers' models moving down to standard models? Beyond smartphones, will we see opportunities for heat dissipation products in devices like tablets or Macs? What changes will we see in materials? Company Representative I think from another perspective, whether it is our overseas customers, all customers, or mobile phone customers, the most important thing we see is the trend of AI in smartphones, tablets, PCs, and laptops. The development trend of AI applications is basically synchronized with our VC applications, such as heat dissipation. This is a definite trend we have seen. So basically, to looks at the functions of AI and how fast they are developing and being applied on various models, the first step is heating dissipation product in this VC architecture; in the next step, even [active] heat dissipation components will gradually be included, and then its application trend will accelerate. This is a definite application trend. Company Representative Let me add: Indeed, based on the projects we have seen approaching mass production, we are starting with high-end models. I believe that in the future, the overall use scenario will rapidly expand from high-end models to more smartphones and more product types. From our current perspective, however, these products are indeed quite high-end, as their requirements are generally higher than those of other customers in the industry. The products are more complex, the entire manufacturing process is more complex, and the [work time] will be longer. Furthermore, the investment involved is considerable, so we believe that this architecture will continue to evolve towards greater complexity and higher performance. This performance extends beyond just heat dissipation; its complexity will continue to evolve based on the overall form factor of the phone. This will indeed evolve from the current high-end heat dissipation VC architecture and may become even more complex. We believe this market presents significant opportunities, and this also reflects the overall development trend of AI devices and AI chips. From what we have seen so far, I think this year is just the beginning. We have seen that the overall market size of the heat dissipation segment has tripled from over CNY300 million last year. This is just an early-stage phenomenon, and there is a lot of room for further development.
Wang Huang: Next, we will start screen projection to share with you our many strategic new businesses and latest performance in the first half of this year. In the first half of this year, the Group was committed to creating the ultimate experiences and leading the upgrade of smart devices. In the customer sector, innovative products, such as those presented in the presentation slides, were introduced in the first half of the year. The Company continued to make progress in multiple industries, including smartphones, smart cars, and AI glasses, bringing a variety of new interactive experiences to end consumers. Furthermore, as the two leaders just mentioned, the Group is actively seizing opportunities brought by AI to fully empower the upgrade of its heat dissipation solutions. As shown in the chart to the left, the Group's VC shipment volume is expected to achieve a compound annual growth rate of 90% or more between 2020 and 2025, with continued double-digit growth expected over the next three years. The Group boasts ample production resources, with a currently planned maximum production capacity of nearly 30 million units per month. Its product offerings cover a wide range of VC materials, including copper, stainless steel, steel-copper hybrids, and aluminum-copper composites. The Group is also actively promoting the R&D and mass production of VCs made from a variety of new materials, including FCCL and titanium. The Group's WLG-related products have rapidly opened up new growth opportunities and received positive market feedback. As the leader just mentioned, in the first half of the year, the Group supported a domestic customer's flagship model with a 1G6P main camera upgrade, leading to a significant breakthrough for WLG in high-end optics, and successfully achieving exclusive mass production supply of WLG-based ultra-light micro-prism solution for the customer's flagship model. Looking ahead to the second half of the year, more flagship models equipped with G+P hybrid lenses and micro-prisms manufactured using the Group's self-developed WLG process will be shipped, marking a milestone for the Group's WLG product line in terms of project development this year. Furthermore, the Group possesses exceptional product development and design capabilities, leading the industry in optics, mechanics, and mold design. In the automotive sector, as intelligentization drives the enhancement of configuration requirements for perception and interactive features, the market for automotive acoustics, optics, and tactile feedback systems is projected to exceed [CNY]400 billion by 2030, creating enormous growth potential. The Group boasts a comprehensive automotive hardware ecosystem and a diverse portfolio of high-end brands, building system-level automotive capabilities. In the first half of 2025, the Group's branding system has been implemented in luxury vehicle models, specifically the flagship SUV of a domestic NEV brand. This system, comprising 32 speakers and a 40-channel amplifier, along with algorithms and tuning services, will create an ultra-luxury automotive acoustic experience. Simultaneously, we completed the acquisition of First Light, an automotive microphone manufacturer, further strengthening our core capabilities in acoustic system solutions and enhancing our automotive acoustic hardware ecosystem. In emerging markets, the Group is targeting a 100 billion-level market size, focusing on product deployment around high-level segments of humanoid robots, prioritizing the development of vertical integration capabilities in high-value components, system- level large modules, and software algorithms. The dexterous hand solution for robots is about to enter mass production delivery, and the Group has already secured multiple project design-wins, including Linkerbot. Furthermore, the Group possesses deep technical expertise and core product capabilities in coreless motors, acoustic-grade sensors, optical sensors, and thermal modules, and will continue to invest in and prioritize these areas. The Group is comprehensively building the core capabilities in XR and AI devices, with key projects gradually being implemented and breakthroughs being made in acoustic and display systems. In terms of acoustics, the Group sustained supply of speakers and microphones to multiple leading domestic and international AR/AI smart glasses manufacturers in the first half of the year. In terms of display systems, the Group has established partnerships with multiple AR optical manufacturers and has several projects under development and delivery. The Group boasts a comprehensive global presence, with R&D centers and production bases spanning nearly 20 countries and regions. R&D centers are located in Europe, Asia, and the Americas, including Singapore, the United States, Denmark, Japan, and Finland. Production and manufacturing bases are located in Mexico, Malaysia, and Vietnam. These facilities strongly support the Company's diversified business development and build a closed-loop business operation. AAC Technologies is poised to scale new heights and deliver even greater returns for shareholders and customers. The above is our summary of the latest strategic developments. Now, we will return to the Q&A session.
Participant: The first question I would like to ask is about the Company’s current layout in the field of robotics, including our current business development ideas and customer development status. Company Representative We actually have considerable technical expertise in motors. Once AI-powered robotic devices or this market emerges, we believe that our technologies and reserves in acoustics and motors can actually be transferred in terms of form and product. As mentioned in our presentation materials, we are already engaged in discussions and development with both domestic and international customers on motors for robotics, including the motors in the Linkerbot, and those for the hands and legs. From the perspective of the entire market, we believe the market is still at an early stage, as leading customers, including those overseas, are still in the process of rapid iteration, preliminary research, and product optimization. We believe there is indeed opportunity here, but over the next two years, we will likely focus more on developing products in collaboration with major or domestic customers. This is the first point. Secondly, with the advent of the AI era, we believe AI will empower hardware in many different ways. One area is robots, especially humanoid robots. Another area is the AI-powered smartphones we currently see, which rely solely on high-performance computing and interaction with large language models. However, we may see new forms of AI devices within the next one to three years. At CES, we saw many startups developing so-called AI devices, and we believe these devices will continue to appear in more and more forms. In addition to the known delivery methods of acoustics, optics, and microphones, there may also be some electronic transmission interactions. I believe this will be a significant aid in the short-term introduction and launch of new products. After all, all AI large language models require a hardware platform to interact with humans. So overall, we are making full deployments for the AI trend and full arrangements for the capabilities, technologies and products of future robots, AI devices, AI smartphones, as well as future AI glasses and XR devices.
Wang Huang: Now, the next question comes from Can Wen, an analyst from Guotai Haitong Electronics.
Can Wen: I have two questions for the management. The first one, following up on the previous question from an investor, is about the gross profit margin of the acoustics business in the first half of the year. We mentioned some pressure from new products. Specifically, are these products significantly innovative, or are we seeing any pressure from initial price competition? Company Representative I would like to expand on what has been said. Acoustics is one of our earliest product lines. Gross profit declined slightly in the first half of this year, primarily due to the fact that many of our new product projects are transitioning to mass production. Overall, I think there has been a noticeable shift in price ranges. From our perspective, with improvements in our operational efficiency, as mass production gradually shifts to full capacity in the second half of the year, we are very confident that the full-year gross profit margin of the acoustics segment will maintain last year's level of 30.2%. We do not expect this year's full-year gross profit margin of the acoustics segment to fall below 30.2%. I believe that there is no need to worry about the stability of our acoustics product line's gross profit margin because of the minor fluctuations in the first half of the year. As our brand grows and becomes more marketable, we may even see further growth in this area. I would also like to add that our sales of [MEMS] have increased by over 50% this year, and you have noticed a shift in gross profit margins. The main reason for this shift is that our MEMS microphones are currently available in two types: one in which we design all the [MEMS boards], then outsource them to foundries; and another in which we collaborate with TDK in Japan, providing product design and back-end packaging, while TDK provides the [MEMS boards]. So, this segment has seen significant growth this year, but its gross profit margin was low, because we did not design the [MEMS boards]. Therefore, the composition of this segment reflects the overall gross profit margin of our MEMS microphones. In fact, compared to the same period last year, the gross profit margin of our own MEMS microphones, specifically the [MEMS boards] which we design, remained stable. For the full year, this has also remained stable compared to last year. While the partnership with TDK yields lower gross profit margins, the overall growth is still significant. Therefore, we will maintain two main product lines going forward. However, in terms of growth, MEMS microphones will be in the next few years. As you can see, our production capacity was only at the level of [inaudible] last year, and this year, we have seen growth of over 50% to 60%. However, we must consider the two product lines separately, so when it comes to MEMS microphones, we cannot use the current gross profit margin level seen in the first half of the year to compare with last year or the first half of the year.
Can Wen: We saw impressive growth in gross profit margin for the Company's optics business in the first half of the year. I would like to ask specifically about the revenue of lenses and modules, such as the YoY breakdown of volume and price, including gross profit margin. Also, do you have any updated guidance on gross profit margin and revenue for lenses and modules for the second half of the year? Company Representative We stated at last year's investor conference that we believed the gross profit margin for lenses would exceed 30%. This year's gross profit margin has already reached 30% or slightly above. Looking at the full year, we believe the gross profit margin for plastic lenses will exceed 30%. We are absolutely certain of this. We have already reached that level in the first half of the year. The growth in the gross profit margins of plastic lenses is primarily driven by two factors: market upgrades to plastic lenses, which have led to steadily rising prices; and internal technological and management improvements for our high-end plastic lenses, which have reduced costs and thus led to increased gross profit margins. Therefore, we remain confident that the gross profit margin of our plastic lenses will reach or exceed 30% for the full year, and I believe there will be further room for growth next year as upgrades continue.
Can Wen: Could you please share more about the module segment? Company Representative Regarding the module segment, our gross profit margin for the entire year was approximately 4% to 6%. This year's increase in ASP and volume was driven by our OIS. We have begun shipping OIS lens modules in 50M, 108M, and 200M pixel sizes, and we are also planning to begin large-scale shipments for periscopes in the second half of the year. We shipped some early samples in the first half of the year, and in the second half of the year, we will begin shipping periscope modules to our major domestic customers. Based on this trend and perspective, we remain very confident in module growth next year.
Wang Huang: Next, we would like to invite the next speaker, Hanjing Wen from CICC to start asking questions.
Hanjing Wen: I have two small questions. First, in the presentation just now, the leaders have already provided a very detailed overview of the outlook for each business line. Could you please provide a systematic overview of the trends for each business line in the second half of the year, including revenue and gross profit margin?
Guo Dan: Let me answer the question about the overall status of each product line. I will continue with what I said at the beginning. We are using a full-year guidance, and we have communicated with you based on this full-year guidance before, so this will remain consistent. Two questions just now mentioned the gross profit margin situation for acoustics. We also mentioned that acoustics saw a ramp-up of many new products in the first half of the year, and we saw a very steady increase in gross profit margin in the second half of the year. The full-year gross profit margin for acoustics is certain to be no lower than last year's 30.2%. I just mentioned the component business in EMD and PM, as well as our motor business. Both segments are experiencing rapid growth. Kelvin just mentioned some highlights in our PM business regarding heat dissipation. The shipments of our heat dissipation products were actually quite limited in the first half of the year, because many businesses were concentrated in the second half of the year. This segment's gross profit margin is significantly higher than the Group’s average. Therefore, in the second half of the year, we will see overall sales growth in the structural parts segment. We believe this will increase by approximately 18% to 20% YoY for the full year. This is our full-year revenue guidance. We are certain that the gross profit margin will be between 18% and 22%. The motor segment saw very rapid growth in the first half of the year, and we believe that our EM segment's revenue will increase by 15% to 20% YoY for the full year, with a gross profit margin exceeding 30%. You just mentioned the issue of optics. Regarding optics, our gross profit margin for lenses is very encouraging, having already reached the 30% margin we mentioned earlier. We will see continued growth opportunities in the second half of the year specifically for the gross profit margin for P-Lens. Overall, the total revenue of the optics segment will increase by approximately 20% YoY. Including both optical lenses and modules, we already saw double-digit GPM in the first half of the year. We will continue to see growth in the second half of the year, with the overall full-year growth rate expected to be between 10% and 15%. Mr. Pan just introduced the business distribution of our MEMS sensors and semiconductors. Overall business volume actually increased in the first half of the year. The impact on gross profit margin is actually more due to the shipment structure of two different product types. Mr. Pan just mentioned that the proportion of products that we independently develop and outsource will actually increase faster in the future, and this increase will lead to increases in both the topline and gross profit margin. The entire product structure will also have a positive impact on GPM growth. Overall, MEMS revenue for the whole year should increase by 50% to 60%, and its gross profit margin will also be in the range of 15% to 20%. This is a clearer guidance for this segment. I heard that some of the attention is on the automotive sector. Our acquisition of PSS has been completed. Overall, its revenue, gross profit margin, and contribution to the Group have all seen a steady increase compared to last year. Revenue and contribution are comparable, which means that the overall revenue growth rate for the Group, as we just mentioned, will be consistent in the second half of the year with that of the first half, at least as high as it was. Furthermore, gross profit margins will remain at or above the Group’s overall gross profit lasty year. I hope this provides some clear guidance.
Participant: My second question is, we have a lot of experience and progress in glasses, especially AI glasses, including AR. Could you share more about the progress of our collaboration with customers in this area, as well as some of our own strategic considerations?
Tingjia Shi: Regarding AI glasses, we have actually had in-depth discussions with some of our leading mainstream customers, particularly regarding our optical and acoustic systems. Regarding optical systems, and particularly optical waveguides, we have already had in- depth discussions with major domestic and international customers. We hope to secure a mass production order in the second half of this year and achieve a breakthrough in mass production by the end of next year or the year after. These are some of our major progresses in AI glasses and optical waveguides. We believe that AI glasses, as accessories for smartphones, will experience rapid growth in the future, similar to watches. We believe this will be a rapid growth trend over the next two to three years.
Wang Huang: Next, we have a question from Kyna Wong from Citi Bank.
Kyna Wong: I have two questions. One is about future opportunities in motors. I would like to know if there are opportunities for dual motors, which could be included in certain high-end smartphones in the future. We see the possibility of some very high-specification foldable phones appearing next year. How will they affect the upgrades of motors, acoustics, and other aspects? I would like to understand some of the Company's opportunities. There are reports that some high-end phones with cameras, specifically camera buttons, may be discontinued. Is this already within the Company's expectations? Will it impact growth plans for next year and the year after? Opportunities in these two areas are likely to be more focused on major customers. My second question is about the Company's plans for vertical integration in optics. In different aspects, for example, in addition to the current lenses and modules and the Company's parts reserves, what are the prospects for future developments in motors and other integrated solutions for high-end optical lenses? What scale will enable the Company to capitalize on growth in the coming years? Company Representative Let me answer the question about motors. Based on what we have heard so far, the industry has indeed suggested that a high-end foldable phone might be released next year. The actual solutions we have learned about may utilize multiple motors, and this could be a trend in foldable form factors. This is not limited to just phones; foldable tablets, like those already released by some domestic customers, could also be a trend for high-end customers. So, in this scenario, we believe that customers do have demand for multiple motors. These solutions are constantly iterating, and customers are constantly evolving their selections. Therefore, whenever such opportunities arise, we will definitely focus on supporting them. Furthermore, I believe the demand for these motors in foldable devices will become even more challenging. After all, foldable devices are very thin, so our capabilities in ultra-thin motors are in line with this trend. Secondly, we have been shipping some camera button modules since the end of last year. Currently, we have not heard of any discontinuation of these features. Instead, they may undergo further iterations or evolution. We have heard there might still be demand for them, so we believe there are opportunities for product optimization and improvement. We believe we have the capabilities to support these opportunities for various customers, both overseas and domestic. Since many domestic customers are adopting camera buttons, we have these capabilities in reserve. However, overall, I am not aware of any discontinuation.
Wang Huang: We would like to invite the next investor, Cherry Ma from Macquarie Bank, to ask a question.
Participant: I see that for automotive, the PSS part [TD]. Company Representative [TD] Despite the ever-changing landscape, we firmly believe that PSS's revenue and profits this year will maintain comparable levels to last year's. Furthermore, based on what I have seen so far, PSS has secured significant orders from overseas customers this year, particularly from major European customers. Its newly secured [TD] have led to steady growth in both revenue and gross profit. This reflects our understanding of PSS's market performance in the automotive speaker market.
Participant: The second question is about the cost. I would like to confirm that our gross profit in the first half of the year was not good, mainly because of the R&D costs of some new products, not the decline in ASP and gross profit margin of old products. Company Representative That is not the case. As I just explained, the slight decline in our acoustic product gross profit in the first half of the year was primarily due to the large number of new product projects entering mass production in the first half of the year. This is why we remain very confident that we can maintain last year's gross profit margin, at least 30.2%, for the full year. This is the main reason and has little to do with R&D costs.
Participant: The initial yield was not high, so the gross profit margin went down. Is that right? Company Representative There will always be a phase that will affect efficiency and yield.
Wang Huang: Next, we would like to invite our last analyst, Tony Zhang from CLSA.
Participant: In our optics business, plastic lenses achieved a 30% gross profit margin in the first half of this year. If we further improve product specifications and scale, what will be the long-term gross profit margin for plastic lenses? The same question applies to G+P hybrid lenses. As production ramps up this year and into next year, at what level do we envision their gross profit margin compared to plastic lenses, or their own gross profit margin, reaching? Still about optics – last year we achieved a turnaround for our entire optics business. What was the overall net profit level for our optics business in the first half of this year? Looking ahead to the second half of the year, or the whole year, what net profit level do you think is feasible or realistic for the optics business as a whole? Company Representative I believe the gross profit margin for plastic lenses, based on our performance in the second half of the year, will definitely be higher than the 30% achieved in the first half. In the medium to long term, I believe that due to the changes in gross profit margins brought about by upgrades to plastic lenses and further advancements in our technology, we believe a gross profit margin of around 40% is the target level for our plastic lens business. As for G+P, the current gross profit margin for our core products – that is, if we add the gross profit margin of G+P to the gross profit margin of WLG itself – is over 35%, which slightly higher than that of our plastic lenses. This is what we are seeing so far. In the long term, I believe the gross profit margin of G+P should be comparable to or slightly higher than our target gross profit margin of 40% for plastic lenses. Of course, this depends on the scale of our WLG and the speed of increased adoption. However, our initial predictions suggest that the gross profit margin of G+P could be comparable to the future gross profit margin of our P products.
Guo Dan: Let me add a few words, echoing what Mr. Pan just mentioned. The optics division has experienced very steady growth from the second half of last year to the first half of this year. In terms of net profit, the optics division achieved positive profits in the first half of the year, continuing the trend from Q4 last year. Our module shipments increased in the second half of this year. In particular, as Mr. Pan has just mentioned, be it the P Lens or WLG in our optical lens segment – it is projected that tens of millions of units of WLG will be shipped this year, which is very impressive. Overall, our gross and net profit levels will undoubtedly continue to rise on this basis.
Participant: Are there any recent progress or updates on our plastic lenses, including G+P hybrid lenses, in areas other than the smartphone business, such as sports cameras, drones, or automobiles? Company Representative We are currently collaborating with leading domestic manufacturers of non-smartphone products, such as drones and sports cameras. We are in discussion with customers that manufacture lenses and possibly transmission systems. However, I believe the value of single-lens cameras in China is still increasing, so we may move towards greater integration to provide better value to our customers.
Wang Huang: Morgan Stanley analyst Andy Meng mentioned that the Company's heat dissipation business is growing rapidly. Looking ahead to the second half of the year, with the introduction of projects from major customers, can we achieve a significant increase in revenue? Also, with the introduction of new Android-related heat dissipation projects in the first half of 2025, can we continue to drive growth in the heat dissipation business? Company Representative I think the heat dissipation business is probably the one that everyone is concerned about at this point. Our heat dissipation business is expected to grow at least threefold this year. Last year, the total heat dissipation business was around CNY320 million. This year, our full-year heat dissipation business will exceed CNY1.2 billion. This is quite certain, and we can fully expect it. Last year, this product line generated over CNY300 million, and even less so before. Overall, I believe it will continue to grow by double digits over the next few years. Furthermore, we have a lot of CapEx and R&D investments. Compared to last year, this year's CapEx growth is primarily driven by investments in and equipment of automation line of the heat dissipation business. If you look at the first half of the year, of course, this has nothing to do with gross profit. While we did incur R&D expenses for heat dissipation in the first half of the year, the business, meaning revenue, was not realized until the second half of the year. Therefore, the heat dissipation business will evolve from passive heat dissipation to active heat dissipation, thanks to the application of AI technology, which seems very certain so far. This will be a key investment direction for us in the coming years, not just this year, but also for the next few years. I believe it is a significant growth and revenue opportunity for us.
Wang Huang: Next, let us invite Mr. Benjamin Pan, Executive Director and Chief Executive Officer of AAC Technologies, to give us a summary. Zhengmin Pan AAC Technologies Holdings Inc. Regarding the announcement of our interim report and your questions, I think I can make a few confirmations and clarifications. First, our current growth scale has increased from [inaudible] in the first half of this year, and the growth base in the second half of the year will not be lower than this number. We have returned to [double-digit] growth, and now it seems that with the progress of our various product lines, this [double-digit] growth rate can be sustained in the next few years. While we are pursuing [double-digit] growth, we are not giving up on maintaining gross profit margin stability or even pursuing further gross profit and gross profit margin growth. We are striving for high growth based on a stable or even slightly increasing gross profit margin. This is not only a source of confidence driving our management team's efforts, but also the result of the comprehensive transformation of our management and business teams over the past five years, led by Kelvin. I believe we have already seen the foundation for this growth. Another point is that we're keeping our R&D, sales, and administrative expenses under control at a reasonable level. So, while we pursue [double-digit] growth, stable gross profit margins, and control over R&D, sales, and administrative expenses, our true goal is to steadily increase our net profit margin. This is our ultimate goal. Of course, cash flow management and opportunities of mergers and acquisitions can bring us stabler and faster growth, and we are continuously exploring and managing such opportunities. The last point I want to remind everyone is that I think there are several differences in the development of our business now compared to before. First, we can be sure that the gross profit of our optical lenses, including G+P, can exceed 30% as we originally hoped and promised, and we will even strive to achieve the goal of 40% in the future. Second, the scale of our heat dissipation business has grown from CNY300 million to at least CNY1.2 billion this year, with even greater growth expected in the future. This has become a key product line for us, and its gross profit margin, as we strive for, is higher than the Group's current average, which will have a positive impact on the stability of our gross profit margin. Third, acoustics is a major source of revenue for us. Although our revenue was slightly lower in the first half of the year, we remain very confident overall. After all, this is our founding product. Whether through product transformation and upgrades or overall efficiency management, we are confident that its gross profit margin will increase slightly from its previous stable level. This is my summary of our business so far this year.
Wang Huang: As Mr. Pan explained, the Company will maintain sustained growth in both revenue and gross profit margin, with strict control over the three expenses and cash flow. The gross profit margin of our G+P hybrid lenses will continue to rise, leading the industry. The gross profit margin and revenue of our heat dissipation business is expected to achieve a double-digit growth rate that is consistent with our revenue, and the Company will continue to deliver improved returns to shareholders. Due to time constraints, this concludes the 2025 Interim Results Announcement Conference of AAC Technologies. Our results materials have been uploaded to our website. If you have any questions, please feel free to contact our investor relations team. Thank you again for your interest and support in AAC Technologies. Goodbye. [END]